Investors are clearly bullish on the prospects for cannabis stocks in 2021.
A Joe Biden win in the November election coupled with a Democratic sweep in Congress cemented by the recent Georgia Senate runoff election wins put the marijuana sector in prime position to outperform not just in 2021 but over the next several years.
While legalization across the country, both at the state and federal levels, has been slow, there's clearly a push in Washington to make it more generally acceptable and accessible. The decriminalization push doesn't necessarily add to the demand for cannabis going forward, but it does knock down one more barrier that destigmatizes the industry.
Investors, however, aren't waiting. The see a growingly bullish environment and are buying marijuana shares in droves. We're less than a week in to 2021 and several cannabis ETFs are already up more than 20%.
The largest of the lot - the ETFMG Alternative Harvest ETF (MJ) - is up 20%, but others, including the Global X Cannabis ETF (POTX) and the Amplify Seymour Cannabis ETF (CNBS), have gained even more. Even the AdvisorShares Pure U.S. Cannabis ETF (MSOS), a relative underperformer within the group having gained "only" 12%, is still one of the marketplace's top-performing funds year-to-date.
As I noted in a recent podcast appearance, I believe cannabis stocks are developing a narrative instead of just trading on speculation. The path is clearing for further revenue growth in the space, four states just approved cannabis measures back in the November election and we've even seen a little M&A activity thanks to the Aphria-Tilray merger.
I covered the 7 cannabis ETFs recently, but here is the list again:
- ETFMG Alternative Harvest ETF (MJ)
- AdvisorShares Pure Cannabis ETF (YOLO)
- AdvisorShares Pure U.S. Cannabis ETF (MSOS)
- Global X Cannabis ETF (POTX)
- Cambria Cannabis ETF (TOKE)
- Amplify Seymour Cannabis ETF (CNBS)
- The Cannabis ETF (THCX)
Despite its status as a relative laggard, MSOS might be the best positioned to outperform over the course of the full year. Its focus on U.S. only stocks could provide it a boost versus the other marijuana ETFs, which tend to be heavily invested in Canada. Higher growth potential in the U.S. versus Canada, which is much further along in the cannabis acceptance cycle, could lead to outsized returns.