The cannabis industry is hot right now and so are several stocks associated with the business sector. For those understandably queasy about investing in single stocks that can fluctuate in value dramatically, an exchange-traded fund (ETF) may be more your style. An ETF is an investment fund, like a mutual fund, as it will contain a portfolio of investments, but it can be traded during the day like individual stocks.
The ETFMG Alternative Harvest ETF combines both true cannabis stocks with related businesses such as GW Pharmaceuticals and Scotts Miracle-Gro. I invested a little bit in the Alternative Harvest ETF utilizing the handy Stash investment app and the fund has been doing well as of late (the app nicknames the ETF “Corporate Cannabis”). Motley Fool recently detailed the top four cannabis stocks in the cannabis ETF, for those that might just want to invest in the individual stocks (Tilray, Canopy Growth, HEXO, and TerrAscend), which can bring greater rewards, but also bigger risks:
The most impressive thing about Tilray’s role in the ETF is that the stock hasn’t even been public all year. Tilray had its initial public offering just in July, but already, its share price has soared almost 600% from its first-day IPO price. Investors jumped into Tilray in part because it represented a pure play on marijuana, the first to go public in the U.S. market, and a limited offering of just 9 million shares means that Alternative Harvest currently owns around 5% of the stock’s total float. Skeptics believe that Tilray could easily see a huge decline, but for now, traders are happy to use the shares to speculate on the coming legalization of recreational cannabis in Canada later this month.
Before Tilray came along, Canopy Growth (NYSE:CGC) routinely found itself at the top of Alternative Harvest’s holdings list. Even now, the stock is the ETF’s fourth-largest position, with a $66 million position representing more than 9% of the fund’s assets. The stock has climbed an impressive 110% so far in 2018.
HEXO has flown under the radar even among many cannabis investors, but the company has a lot going for it. Like higher-profile players, the Canadian company is set to supply recreational cannabis in the key market of Quebec, with plans to boost annual capacity to more than 100,000 kilograms by the end of 2018. Moreover, a joint venture with Molson Coors to make cannabis-infused beverages could become another growth driver. All told, HEXO is putting itself in position to become a much more important player in the marijuana sector.
TerrAscend is noteworthy because its most successful move involves a collaboration with another cannabis stock. Late last year, a group of investors led by a private equity company as well as Canopy Growth invested 52.5 million Canadian dollars in a private placement. In return, they got 47.7 million shares of TerrAscend stock, as well as warrants to purchase an additional 47.7 million shares at CA$1.10 at any time through December 2020. As part of the deal, TerrAscend joined the CraftGrow platform, allowing it to sell premium cannabis through Canopy’s distribution network. That’s worked out well for TerrAscend so far, and investors look forward to how things work out as demand for cannabis ramps up.
Motley Fool notes that the Alternative Harvest ETF is up 24% in the last year, but whether you invest in the ETF or individual stocks (and I do own a few shares of Tilray and Canopy Growth), you will certainly want to diversify and not place all of your hard-earned money in one stock or even one sector. While I have invested in cannabis, I also have invested in other areas like internet security and online sales. As Motley Fool notes, however, there are opportunities in cannabis stocks, and with Canada legalizing soon, and more progress for the movement around the corner, you may want to do your due diligence and make a few investments in the industry.
Find out the latest about the cannabis industry, including great investment opportunities, at the upcoming International Cannabis Business Conference in San Francisco on February 7-8, 2019. After San Francisco, the ICBC will be going across the pond to Barcelona and Berlin. Get your tickets and don’t miss your chance to learn important info and network with top investors and entrepreneurs from around the world.