An employee trims cannabis plants in a greenhouse at the 7ACRES facility in Tiverton, Ontario, … [+]
© 2018 Bloomberg Finance LP
Amidst the COVID-19 pandemic, a new report expects Canada’s recreational marijuana industry to double revenues this year and grow more than 500% by 2025. This should be good news for cannabis ETFs, many of which are far off their highs.
In October 2018, Canada became the second country to make recreational cannabis legal nationwide. This sparked a huge rally in cannabis stocks, such as Canopy Growth (CGC) and Tilray (TLRY). It also sent ETFs focused on the cannabis industry surging.
However, the initial excitement soon hit speed bumps as the nascent industry faced business realities.
“Supply bottlenecks, high prices despite an oversupply, and a dearth of brick-and-mortar stores failed to lure many consumers away from the black market,” said Brightfield Group, in its August 2020 report on “Cannabis in Canada.” Brightfield is a cannabis-focused market research firm based in Chicago.
On top of that, the companies faced logistical challenges and a strict regulatory structure. Companies across the board experienced massive financial losses 2019 causing cannabis stocks and ETFs to tank.
In spite of COVID-19, 2020 saw the industry launch „Cannabis 2.0”, which expanded product lines to include edibles, extracts, vapes, and topicals, which were not widely available. Cannabis 2.0 has realigned the industry to take a “more cautious and strategic approach to product development, distribution and marketing, along with the tightening of belts and shifts in leadership among many of Canada’s licensed producers,” said the report.
Another growth driver is the opening of previously highly restrictive provincial markets. Ontario only allowed 24 retail outlets in the first year of legal marijuana, said the report. There are now more than 100 retailers and an additional 50% slated for licensing prior to year’s end.
The Brightfield Group estimates that the recreational marijuana segment of the cannabis market should double 2019’s revenues of $881.9 million to $1.7 billion this year. This growth comes despite an insufficient number of dispensaries, especially in the populous providences; overly restrictive regulations; and high production costs, including high taxes, which makes it difficult to compete with the black market.
However, 2020 has seen more retail outlets open, bans lifting, and value brands entering the market. These factors led Brightfield to predict that the recreational market will grow 512% to $5.4 billion by 2025. Including medical marijuana, the entire cannabis industry is forecast to see revenues of $5.8 billion.
ETFs that focus on the cannabis industry include:
· The ETFMG Alternative Harvest ETF (MJ), which focuses on companies in the global cannabis industry.
· AdvisorShares Pure Cannabis ETF (YOLO), the first actively managed ETF with which tracks only cannabis companies with exposure in the U.S.
· AdvisorShares Vice ETF (ACT) holds alcohol, tobacco and only Cannabis companies doing legal business in the U.S.
· Amplify Seymour Cannabis ETF (CNBS) CNBS invests at least 80% of its assets in companies that derive 50% or more of their revenue from the cannabis and hemp ecosystem.
· Cannabis ETF (THCX) THCX gets exposure to a basket of stocks expected to benefit from growth of the hemp and legal marijuana industries.
· Cambria Cannabis ETF (TOKE) TOKE seeks capital appreciation from investments in the global equity markets that have exposure to the broad cannabis industry.
· GlobalX Cannabis ETF (POTX) provides exposure to companies active in the cannabis industry
· Indxx MicroSectors Cannabis ETN (MJJ) is an exchange-traded note that tracks the companies that provide products or services related to the medical or industrial use of cannabis industry.
· Indxx MicroSectors Cannabis 2X Leveraged ETN (MJO) is an ETN that provides two times leveraged exposure to the Indxx MicroSectors Cannabis ETN.