T.The Global X Cannabis ETF [POTX] has warmed as some of the largest cannabis stocks in the U.S. brace for supported growth. The main driver is the legalization of cannabis sales.
The fund had accelerated 67% in 2021 to $ 16.53 on February 26, and hit an intraday high of $ 29.50 on February 10. This was supported by the expectation that US President Joe Biden would fulfill an election promise to end the cannabis ban.
According to Yahoo Finance, the Global X Cannabis ETF’s total daily return year-to-date as of March 1 was 95.5% and its net worth was $ 219.46 million. In comparison, the ETFMG Alternative Harvest [MJ] had a total daily return for the period of 59.6% and total assets of $ 1.8 billion year-to-date.
Global X Cannabis ETF growth in 2021
According to Business Insider, 15 states, including Washington and most recently New Jersey, have legalized cannabis, while another 36 states have approved medical use.
Contact with the biggest names in the pot industry
The demand for cannabis boomed during the coronavirus pandemic. Some pharmacies were seen as essential and were allowed to stay open during the lockdown.
In Canada, recreational sales were CA $ 2.6 billion in 2020, up 120% from 2019, according to Statistics Canada, as reported by Marijuana Business Daily. In the US, cannabis sales grew more than 40% from 2019, according to JD Supra.
The Global X Cannabis ETF, launched on September 17, 2019, invests in companies involved in the legal production, growth and distribution of cannabis and industrial hemp. The fund also offers exposure to those providing financial services and pharmaceutical applications to the cannabis industry.
The Global X Cannabis ETF held 25 positions as of March 1, including Aphria [APHA] with a weighting of 9.5%, followed by GW Pharmaceuticals [GWPH] at 9.1% Tilray [TLRY] at 8.8%, Cronos Group [CRON] at 6.6% and canopy growth [WEED.TO] at 5.3%.
Aphria’s shares, listed on the Nasdaq, are up 367% over the past year (through Feb. 26). The company had sales of CA $ 160.5 million for the six months ended November 30, an increase of 33.1% over the same period last year.
Nasdaq-listed Aphria stock growth last year
The main boost, however, came in December when Aphria announced it was teaming up with competitor Tilray to create the world’s largest cannabis company. Aphria hopes the collaboration will contribute to its international expansion into Europe, particularly the UK, where Tilray recently signed a deal with Grow Pharma to import and distribute its medical cannabis. Aphria’s acquisition of US craft brewer SweetWater Brewing, which makes the flagship 420 beverage, last November will also boost sales.
This is due to increased M&A activity in the sector, including Jazz Pharmaceuticals’ purchase of GW Pharmaceuticals for $ 7.2 billion [JAZZ]This has helped research into cannabis-based drugs for treating diseases such as epilepsy.
Canopy Growth stocks are up 59% in the past 12 months (ending February 26). This was supported by the launch of the Shop Canopy e-commerce platform last July and the announcement in January 2021 of a new line of cannabis wellness products for dogs developed by Martha Stewart.
A fast growing industry
The strong demand after the pandemic is expected to continue to grow. BDSA analysis predicts that global cannabis sales will reach $ 47.2 billion by 2025, which equates to an average annual growth rate (CAGR) of 22%. The US market is projected to reach $ 34.5 billion by 2025, an annual growth rate of 18%.
Irwin Simon, the executive director of Aphria, recently told CNBC that he hopes cannabis will be completely legal in the US in the next two to three years, as well as in other countries like Germany and Portugal. “We’ll have the track record, knowledge, brands and technology to make a huge impact once legalization is done,” said Simon.
“We will have the track record, knowledge, brands and technology to make a significant impact after legalization” – Irwin Simon, Aphria General Manager
Health concerns about cannabis and allegations that it is the gateway to harder drugs plague the industry. There are also concerns about how smooth federal legalization will be, as it requires Republican votes to get through the Senate.
In addition, the Financial Times analysis found that of 59 companies found in eight major cannabis ETFs, 43 have made a loss in the past 12 months.
Despite the red flags, Jay Jacobs, director of research and strategy at Global X, told the release that he remained optimistic. “What we are seeing in many fast-growing industries is that, at least at this stage in their growth, they are not focused on profitability,” said Jacobs. “It’s about market share, economies of scale and trying to win customers.”
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