ETF Of The Week: Marijuana Stocks Surge Higher

The first (and only) pure-play marijuana ETF keeps outperforming. 

Last week, we reported that the ETFMG Alternative Harvest ETF (MJ) was on a tear—and it's showing no signs of slowing down.

Over the past month, MJ has surged 31%, making it the best-performing ETF in the U.S by far. In comparison, the SPDR S&P 500 ETF Trust (SPY) is only up 2% over the same period:

Source: StockCharts.com; data as of Sept. 6, 2018

That's quite the turnabout from the start of the summer, when MJ was down 2% year-to-date (read: "US Marijuana ETF Boom Stalls").

Pot Rally Driven By … Alcohol?

Behind MJ's outperformance has been an explosive rally in the underlying marijuana companies, which are riding high based on interest from large alcoholic beverage producers and distributors.

Over the past few months, several beer and liquor companies, including Constellation Brands (STZ), Molson Coors Brewing (TAP) and Diageo (DEO), have either bought significant stakes in cannabis companies or indicated their interest in doing so (read: "Marijuana ETF Top Aug. Performer").

MJ takes sizable stakes in the marijuana microcaps making headlines, such as Canopy Growth Corp. (11%), Cronos Group (11%) and Aurora Cannabis (8%). Canopy Growth's stock price has risen 98% over the past month, while Cronos' has risen 118% and Aurora Cannabis' has risen 41%.

In fact, marijuana stocks have risen so fast that on Thursday, the SEC issued guidance warning investors of potential stock manipulation and investment scams.

Money Returning

Outperformance has once again lured investors back to MJ, which had seen a drought of new investment money for several months.

When MJ launched late last year, it attracted a flood of investment fairly quickly, pulling in $359 million in assets in its first 30 days. By March, however, new net flows into the fund had mostly evaporated (read: "5 Traits Of Successful Thematic ETFs").

In the past two weeks, however, MJ has attracted $56 million in new net investment money, bringing MJ's assets under management to just under $500 million:

Source: ETF.com; data as of Sept. 6, 2018

Whether MJ can sustain its upward trajectory for the long term, however, will ultimately depend on if and when the U.S. decides to legalize marijuana on the federal level. Doing so would resolve the banking issues that have so far prevented marijuana companies from accessing the U.S. banking system, and which in fact have also prevented additional marijuana ETFs from obtaining approval from potential custodians (read: "Promise And Peril Of Marijuana ETFs").

But with the Trump administration's interest in reviving the "war on weed," whether federal legalization happens soon—or at all—remains anybody's guess.

Contact Lara Crigger at [email protected]