The Amplify Alternative Harvest ETF (NYSEARCA:MJ) was the pioneering cannabis ETF to hit the market. This exchange-traded fund encompasses a wide range of cannabis stocks, but diversification may not be the optimal choice in this sector. My bullish investment thesis is based on positive trends in the cannabis industry, with multiple catalysts for legalization and cost reduction benefiting struggling stocks. (Source: Finviz)
MJ ETF’s diversified investments have recently seen a surge due to various catalysts driving growth in the cannabis sector. The ETF primarily invests in the Canadian cannabis market, where companies have faced challenges in generating positive adjusted EBITDA due to oversupply and intense competition, compounded by significant excise taxes. The fund holds positions in major Canadian LPs like Tilray Brands (TLRY), Canopy Growth (CGC), and SNDL, Inc. (SNDL), as well as cannabis REITs like Innovative Industrial Properties (IIPR), accounting for up to 10% of the fund. (Source: Amplify ETFs)
The remaining 40% of the fund is allocated to the Amplify U.S. Alternative Harvest ETF (MJUS), which utilizes swap agreements to mirror the returns of U.S. multi-state operators (MSOs) not directly investable by MJ. This portion of the fund focuses on larger MSOs such as Green Thumb Industries (GTBIF), Curaleaf (CURLF), Verano Holdings (VRNOF), and Trulieve Cannabis (TCNNF), comprising over 70% of the ETF’s investments. (Source: Amplify ETFs)
In recent years, the cannabis market has closely followed the trajectory of MJ and MJUS, experiencing similar downturns. Positive trends in the cannabis market are emerging, with the ETF investing evenly in the Canadian and U.S. MSOs. While Canadian stocks trade on major U.S. exchanges, the MSOs are limited due to federal restrictions. Both segments exhibit differing trends, with potential benefits from reduced excise taxes in Canada and potential market expansions in states like Florida and New York.
Key catalysts for the cannabis sector include the possibility of federal rescheduling in the U.S., potentially benefiting MSOs by eliminating excessive taxes. The sector also faces regulatory changes in Germany and the potential passage of the Safe Banking Act. Overall, MJ provides a comprehensive investment opportunity in the cannabis space, offering exposure to various catalysts driving growth. (Source: Amplify ETFs)
Investors may consider direct investments in individual cannabis stocks based on specific catalysts or opt for more exposure to the U.S. market through MJUS. Despite recent challenges, the sector has shown resilience, making MJ an attractive entry point with significant upside potential.
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