Marijuana ETF Top Aug. Performer

August 29, 2018

It's high times for the ETFMG Alternative Harvest ETF (MJ). As of Aug. 28, MJ was the top-performing ETF over the past 30 days, rising a staggering 27.7%:

 

Source: StockCharts.com; data as of Aug. 28, 2018

 

Much of that outperformance stems from a veritable boom in the fund's underlying stocks. In the last month, large alcohol companies have either bought significant stakes in marijuana companies or indicated an interest.

Beverage Makers Pour In

It all started last October, when alcoholic beverage giant Constellation Brands (STZ) acquired a 9.9% stake in the largest publicly traded marijuana company, Canopy Growth Corp., a major provider of medical marijuana in Canada.

On Aug. 15 of this year, Constellation announced it was spending $3.8 billion to up that share to 38%.

Then in June, Heineken's California-based craft brewer Lagunitas announced it was working on a THC-infused product; THC is the chemical compound in marijuana that produces its signature psychoactive "high."

Weeks later, on Aug. 3, Molson Coors Brewing (TAP) announced it would partner with Canadian marijuana grower Hydropothecary Corp. to jointly develop cannabis-infused drinks for the Canadian market.

As if that weren't enough, on Aug. 24, Bloomberg reported that Diageo (DEO), maker of Guinness Beer and Smirnoff vodka, was in talks with at least three Canadian marijuana companies, to either purchase a stake in those companies or enter a development partnership with them. The time frame for any potential deal was unclear, however.

Fertilizer Giant Explores Deals

Yet it isn't just beverage companies lighting up the cannabis space. In late April, fertilizer giant Scotts Miracle-Gro (SMG) inked a $450 million deal to purchase Sunlight Supply, the U.S.' top hydroponics distributor. Hydroponics are devices that enable the cultivation of crops in water instead of soil; they've long been used by marijuana cultivators.

Sunlight Supply joins Scotts Miracle-Gro's existing marijuana and hydroponics unit, Hawthorne Gardening, which the company has spent hundreds of millions of dollars in building out in recent years.

Curiously, however, tobacco giants like Philip Morris (PM) and Altria Group (MO) have dragged their heels on investing in cannabis assets, even though their vaping devices and e-cigarettes could easily translate to marijuana as well as tobacco.

These companies' reluctance to get involved in the marijuana business may stem from how intensely tobacco companies are regulated by the U.S. government. After all, marijuana is still classified as a Schedule I drug, the same as heroin, and it remains illegal to possess or sell at the federal level.

Rising Tides Lift Cannabis Stocks

All told, the rapid-fire pace of acquisition and partnership announcements has buoyed marijuana stocks to astonishing heights this month.

Since Aug. 1, Canopy Growth Corp.’s stock price has risen 79%, while Hydropothecary’s has risen 30%.

Trickle-down effects extended into Canadian-listed marijuana companies not explicitly making headlines as well. Aurora Cannabis has gained 35% since Aug. 1, Aphria has gained 42% and Cronos Group has gained a whopping 108%.

Those stock price increases have in turn lifted MJ, which has considerable weightings in these outperforming stocks. For example, 11% of MJ's portfolio is in Canopy Growth, while 9% is in Cronos Group:

 

Top 10 Holdings In MJ

Security % of MJ 30-Day Return
Canopy Growth 10.94% 79%
Cronos Group 9.21% 108%
Aurora Cannabis 8.53% 35%
GW Pharmaceuticals 5.90% 9%
CannTrust Holdings 4.86% 50%
Emerald Health Therapeutics 4.25% 59%
Green Organic Dutchman  4.19% 10%
Hydropothecary Corp 3.70% 30%
OrganiGram Holdings 3.59% 14%
Auxly Cannabis 3.29% 48%

Sources: ETF.com, ETF Managers Group, Google Finance; data as of Aug. 28, 2018

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