Why Marijuana ETFs Are On A High In 2019

After being beaten down in the final quarter of 2018, pot stocks staged a nice comeback at the start of this year on the renewed appeal for riskier assets. Notably, these stocks recorded their third consecutive week of gains, the longest winning streak since August. ETFMG Alternative Harvest ETF (MJ - Free Report) — the first and only pure ETF targeting the cannabis/marijuana industry — has climbed almost 38% so far this year (read: Best & Worst Performing ETFs to Start 2019).

The massive strength came despite disappointing earnings from Aurora Cannabis (ACB) and Aphria (APHA). This is because investors are capitalizing on the huge potential of the global cannabis industry with the beaten-down stocks.

MJ in Focus

The fund tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem, benefiting from global medicinal and recreational cannabis legalization initiatives. The fund holds 37 securities in its basket and Canadian firms make up for 57% of the portfolio, while American firms comprise 33%. The ETF has AUM of $756.5 million and trades in a good volume of around 820,000 shares. It charges 75 bps in annual fees.

Inside the Surge

The pot industry is emerging and poised for rapid growth given its widespread legality. Though cannabis remains illegal at the federal level in the United States, 10 states and Washington D.C. have legalized recreational marijuana while 33 states have legalized medical weed. Recreational marijuana is expected to be legal soon for adults over the age of 21 years in New York as well (read: After a Landmark 2018, Will Pot ETF See Same High in 2019?).

Canada is the second country in the world to legalize the drug for both medical and recreational use, trailing Uruguay and the first country among the G-7 nations. In late November, the European nation of Luxembourg announced that marijuana would soon be legalized for recreational use by adult residents.

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