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Roundhill Cannabis ETF (WEED - Free Report) topped the list of the best-performing ETFs of the third quarter with impressive returns of about 49%. The rally came on the back of a series of legislative activities that spread huge optimism across the marijuana industry, driving stocks higher.

First, the U.S. Department of Health and Human Services is considering reclassifying cannabis from a Schedule 1 to a Schedule 3 substance, indicating a softer stance on its medical utility and abuse potential. A federal reclassification could potentially expand the marijuana market, which is a multibillion-dollar industry in the United States and a cash crop in many newly legalized states.

Second, House Democrats have introduced the Marijuana Legalization and Expungement Bill. It proposes de-scheduling marijuana, applying a federal excise tax, and establishing a process for expunging non-violent federal marijuana convictions among other provisions. Although passed twice in the House, its fate is uncertain with a Republican majority. If enacted, this legislation could significantly propel the market, potentially igniting a rally among cannabis stocks.

Third. the U.S. Senate Committee on Banking, Housing, and Urban Affairs approved the Secure and Fair Enforcement Regulation Banking Act, now known as the SAFER Banking Act of 2023. The bill now heads to the full Senate for a vote, raising hopes for the cash-dependent cannabis sector to get access to regular banking services. It seeks to ensure that all businesses — including state-sanctioned cannabis businesses — will have access to deposit accounts, insurance, and other financial services.

Let’s take a closer look at the fundamentals of WEED.
 

WEED in Focus

Roundhill Cannabis ETF is an actively managed ETF, designed to offer investors exposure to the cannabis sector. The fund may invest in various cannabis-related companies, including cannabis producers and distributors, cannabis-related technology companies, and additional cannabis-related ancillary businesses. It holds five stocks in its basket through the use of swaps.

Roundhill Cannabis ETF has gathered $3.4 million in its asset base. It charges 40 bps in annual fees and trades in 6,000 shares a day on average.

The top two holdings — Curaleaf Holdings Inc. (CURLF - Free Report) and Green Thumb Industries Inc. (GTBIF - Free Report) — have been the top performers, rising 31.4% and 38.2%, respectively over the past three months. CURLF and GTBIF swap account for 33.1% and 29.5% shares, respectively, in the ETF basket. These are followed by Cresco Labs Inc. (CRLBF - Free Report), which makes up for a 9.9% share of WEED and gained 16.1%.

Curaleaf Holdings is engaged in the production and distribution of cannabis products. It has an estimated earnings growth rate of 31.4% for this year. The stock has a Zacks Rank #4 (Sell) but has a solid Momentum Score of B.

Green Thumb is a cannabis consumer packaged goods company and owner of RYTHM, Dogwalkers, and branded cannabis products. Its earnings are expected to decline 37.5% this year but will likely grow by 41.4% for the next. GTBIF has a Zacks Rank #3 (Hold) and a Value Score of B.

Cresco Labs is an integrated multistate cannabis operator, principally in the United States. Its brands are designed to meet the needs of all consumer segments. Its brands include Cresco, High Supply, Mindy's Edibles, Good News, Remedi, Wonder Wellness Co., and FloraCal Farms. Its earnings are expected to decline 10% this year but will likely grow 55.4% in the next. Cresco Labs has a Zacks Rank #3 and a VGM Score of B.

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