MarketWatch:
Legalization is spreading across the U.S.
Marijuana stocks have surged this year as investors anticipate wider acceptance of legal distribution of recreational products in the U.S.
Your best way to ride this wave may be through exchange traded funds. But investors also like to see lists of stocks in rapidly growing industries.
So, below, is a list of analysts’ favorite stocks associated with the increased use of cannabis, drawn from holdings of six of the largest ETFs tracking the industry.
For broad coverage of the rapidly expanding marijuana industry, see Cannabis Watch. Recent coverage includes efforts by Senate Majority Leader Chuck Schumer to introduce legislation for the federal legalization of marijuana and New York Gov. Andrew Cuomo’s drive toward legalization in his state.
To see how dramatic the stock market reaction has been, take a look at this chart for the ETFMG Alternative Harvest ETF MJ, +8.41%, the largest exchange traded fund in the space:
Of note: That’s a year-to-date chart through 2:34 p.m. ET on Feb. 9. The ETF has doubled so far in 2021. During 2020, it fell 12%.
For an example of the heated action, shares of Canopy Growth Corp. CGC, 2.83% WEED, 5.07% were up as much as 12% in morning trading on Feb. 9, after the company announced higher-than-expected sales for the quarter ended Dec. 31.
Marijuana stock list
In order to come up with a list of analysts’ favorite marijuana-associated stocks, we collated the holdings of six of the largest marijuana ETFs:
- The ETFMG Alternative Harvest ETF has $1.8 billion in assets under management and annual expenses of 0.75% of assets. The ETF holds 30 stocks and is heavily concentrated, with Tilray Inc. TLRY, 28.29%, making up 13.7% of the portfolio and Aphria Inc. APHA, 13.99% APHA, 6.61% accounting for 13.4%. According to ETFMG, the ETF is designed to “measure the performance of companies within the cannabis ecosystem benefitting from global medicinal and recreational cannabis legalization initiatives.” This broad objective means it holds shares of several large tobacco companies: Philip Morris International Inc. PM, 0.67%, Altria Group Inc. MO, 0.32% and British American Tobacco PLC BATS, -0.90%.
- The AdvisorShares Pure US Cannabis ETF MSOS, 1.67% has $604 million in assets and annual expenses of 0.74%. AdvisorShares bills this ETF as the only one that is both actively managed and U.S.-focused.
- The Horizons Marijuana Life Sciences Index ETF HMLSF, 10.90% has $583 million in assets and an expense ratio of 0.94%.
- The AdvisorShares Pure Cannabis ETF YOLO, 2.33% has $323 million in assets, with an annual expense ratio of 0.75%. It invests in companies that derive at least 50% of revenue from the cannabis industry, but may also invest in pre-revenue companies doing research and development on marijuana-derived products.
- The Global X Cannabis ETF POTX, 11.01% has $149 million in assets with an expense ratio of 0.50%. It has a highly concentrated portfolio of 18 stocks, with Tilray making up 16.9% of the portfolio, Aphria 11.9% and Aurora Cannabis Inc. ACB, 13.97% ACB, 11.92% 10.2%.
- The Cannabis ETF THCX, 6.77% has $117 million in assets with annual expenses of 0.70%. The ETF holds a broad group of 29 U.S. and Canadian marijuana stocks.
The only stock held by all six ETFs is Charlotte’s Web Holdings Inc. CWBHF, 0.28% CWEB, 0.00%. The company is based in Boulder, Colo., but all six ETFs hold shares traded under its Canadian ticker, CWEB.
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Analysts favorite marijuana stocks
The six ETFs listed above hold 85 stocks or total return swaps tied to the stocks. A few of these companies are “double counted,” with one or more ETFs holding shares traded in Canada and one or more holding the shares traded on U.S. exchanges. In the table below, the tickers without an exchange code before them, are U.S. tickers.
The list includes countries where the companies are based. The share prices and price targets are in local currencies. Tobacco companies are not excluded, because the managers of the ETFMG Alternative Harvest ETF (at least) believe they will benefit from the expanding regulatory acceptance of recreational marijuana use.
Among the 85 stocks, 28 have majority “buy” or equivalent ratings among analysts polled by FactSet, with at least five analysts covering each company. Some of these stocks have gotten ahead of consensus price targets.
Here they are, sorted by the 12-month upside potential implied by consensus price targets:
| COMPANY | TICKER | COUNTRY | SHARE ‘BUY’ RATINGS | CLOSING PRICE – FEB. 8 | CONSENSUS PRICE TARGET | IMPLIED 12-MONTH UPSIDE POTENTIAL |
|---|---|---|---|---|---|---|
| VALENS CO. INC. | TO:VLNS | CANADA | 89% | 1.96 | 3.57 | 82% |
| Cara Therapeutics Inc. | CARA | U.S. | 88% | 19.46 | 33.50 | 72% |
| MediPharm Labs Corp. | TO:LABS | Canada | 60% | 0.76 | 1.29 | 70% |
| British American Tobacco PLC | UK:BATS | U.K. | 84% | 26.96 | 36.74 | 36% |
| Imperial Brands PLC | UK:IMB | U.K. | 74% | 14.43 | 19.32 | 34% |
| AYR Strategies Inc. | AYRWF | U.S. | 88% | 34.45 | 44.99 | 31% |
| Zynerba Pharmaceuticals Inc. | ZYNE | U.S. | 71% | 5.74 | 7.42 | 29% |
| Village Farms International Inc. | TO:VFF | Canada | 100% | 21.07 | 27.17 | 29% |
| Columbia Care Inc. | CCHWF | U.S. | 83% | 7.57 | 9.65 | 27% |
| Arena Pharmaceuticals Inc. | ARNA | U.S. | 100% | 81.97 | 95.20 | 16% |
| Altria Group Inc. | MO | U.S. | 67% | 42.97 | 49.00 | 14% |
| Jushi Holdings Inc. Class B | JUSHF | U.S. | 83% | 8.49 | 9.68 | 14% |
| Swedish Match AB | SE:SWMA | Sweden | 76% | 667.40 | 754.88 | 13% |
| Scotts Miracle-Gro Co. Class A | SMG | U.S. | 71% | 239.52 | 266.40 | 11% |
| Philip Morris International Inc. | PM | U.S. | 70% | 85.99 | 95.20 | 11% |
| Curaleaf Holdings Inc. | CURLF | U.S. | 93% | 16.73 | 17.89 | 7% |
| Trulieve Cannabis Corp. | TCNNF | U.S. | 100% | 49.49 | 51.33 | 4% |
| Cresco Labs Inc. | CRLBF | U.S. | 93% | 15.57 | 15.97 | 3% |
| Charlotte’s Web Holdings Inc. | TO:APHA | U.S. | 75% | 6.87 | 6.88 | 0% |
| Harvest Health & Recreation Inc. | HRVSF | U.S. | 86% | 4.02 | 3.88 | -4% |
| Innovative Industrial Properties Inc. | IIPR | U.S. | 71% | 215.18 | 207.17 | -4% |
| Turning Point Brands Inc. | TPB | U.S. | 100% | 55.74 | 53.60 | -4% |
| Green Thumb Industries Inc. | GTBIF | U.S. | 94% | 33.90 | 32.48 | -4% |
| Greenlane Holdings Inc. Class A | GNLN | U.S. | 100% | 5.97 | 5.40 | -10% |
| TerrAscend Corp. | TRSSF | Canada | 100% | 14.88 | 12.75 | -14% |
| GrowGeneration Corp. | GRWG | U.S. | 57% | 62.97 | 52.71 | -16% |
| Hydrofarm Holdings Group Inc. | HYFM | U.S. | 100% | 80.48 | 63.25 | -21% |
| Aphria Inc. | TO:APHA | Canada | 64% | 24.16 | 15.98 | -34% |
If you see any stocks of interest, it is best to do your own research to learn how a company is planning to grow and compete. The ETFs provide the advantage of diversification. Selecting individual stocks may turn out well, but buyer beware.
Among the larger holdings of the ETFs, Tilray was not included in the list because only 14% of analysts polled by FactSet rate the shares a buy. None of the 13 analysts covering Aurora Cannabis rate the stock a buy.
