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  • Fund Watch
  • cannabis

AdvisorShares Pure Cannabis ETF heats up on US legislation support

The AdvisorShares Pure Cannabis ETF [YOLO] may have slipped from its February highs but could be set for a recovery in the medium-term amid growing support for cannabis legalisation in the US.

The fund closed at $17.69 on 4 January before rising 72.8% to $30.56 on 10 February. However, the AdvisorShares Pure Cannabis ETF has since slipped 21.5% to close at $23.98 on 5 April.

Last year, the cannabis ETF had rocketed 47.2% from $11.55 on 31 December 2019 to close at $17 on 31 December 2020.

The AdvisorShares Pure Cannabis ETF’s year-to-date total daily return, according to Yahoo Finance, was 58.12% as of 6 April. The fund had $408.9m in assets under management as of 5 April. In comparison, the Global X Cannabis ETF recorded a year-to-date total daily return of 95.5% and had net assets of $194.5m.

47.2%

The AdvisorShares Pure Cannabis ETF’s rise between 31 December 2019 and 31 December 2020

 

Cannabis legislation builds support

When the AdvisorShares Pure Cannabis ETF launched on 17 April 2019, it became the first actively managed ETF with dedicated cannabis exposure in the US.

The fund invests in cannabis-related companies engaging in legal business across multiple industries in the US and overseas.

Its top holding was Canadian greenhouse produce grower Village Farms International [VFF.TO], which had a 14.57% weighting as of 5 April, followed by Aphria [APHA] at 9.84%.

Shares in Village Farms International have climbed 399% in the past year to close at $17.31 on 5 April. The company’s cannabis growing division Pure Sunfarms reported its fourth-quarter sales had doubled year over year to $22.7m from $10.3m in 2019. Annual sales had climbed from $64.1m to $74.1m.

399%

Village Farms International's share price rise over the past year

 

Michael DeGiglio, CEO of Village Farms, hailed “strong and growing demand” for Pure Sunfarms’ products, such as dried flowers, edibles, oils and vapes.

However, the Village Farm’s consolidated earnings failed to match analysts’ expectations of 59% growth after sales grew 43% year-over-year to $47.4m in the fourth quarter, according to The Motley Fool.

Aphria’s share price also rocketed in the past 12-months, rallying 545% to close at $18.19 on 5 April. The company recorded a 33% year-over-year jump in second-quarter revenue to CAD$160.5m, helped by sales from its adult-use cannabis products that accounted for CAD$72m of its total revenue.

However, the biggest revenue driver has been its anticipated merger with peer Tilray [TLRY] — a move that will create the world’s largest cannabis company.

Meanwhile, the share price of GrowGeneration [GRWG], which had a 6.54% weighting in the fund as of 5 April, increased 1,482.5% in the past 52 weeks to close at $50.64.

The speciality retail hydroponic and organic garden centres owner reported record annual revenues of $193m for 2020, up 143% from 2019. Its adjusted EBITDA came in at $19.2m, up from $5.3m in the year-ago period.

1,482.5%

GrowGeneration's share price rise over the past year

 

Darren Lampert, co-founder and CEO at GrowGeneration, expects 2021 full-year revenues to be between $415m and $430m, helped by a wave of recent acquisitions, including its purchase of the assets of Aquarius Hydroponics in mid-March.

“It represents our entry into Massachusetts' cannabis market, which is projected to become a $1bn industry in 2021,” Lampert said in a statement. He is also looking southwards to New York and elsewhere. “You’ll see us entering the East Coast markets shortly,” he recently told CNBC.

After years of failed attempts, New York State recently became the 17th US state to fully legalise the recreational and medicinal use of the drug.

It is expected that other states will follow under US president Joe Biden’s aim to end the US federal cannabis prohibition.

 

High hopes

According to Precedence Research, the global legal cannabis market was valued at $17.5bn in 2019 and is predicted to reach $65.1bn by 2027.

There is, however, some market caution that cannabis stocks have been inflated by the Reddit investment community and could trend in the opposite direction if sentiment falls, according to CNBC.

There are also concerns about the failure of many cannabis companies to turn a profit over the last 12 months and federal legalisation being slower and more complex than first thought.

“If cannabis is eventually decriminalised and then legalised in the US, this is a market that can achieve technology-like growth” - Billy Duberstein

 

Irwin Simon, CEO of Aphria, told CNBC in early March that US legalisation could happen “within the next few years” and that Germany and Portugal may get there quicker.

The short and long-term positivity for the Advisor Shares Pure Cannabis ETF and its peers remain strong. “If cannabis is eventually decriminalised and then legalised in the US, this is a market that can achieve technology-like growth,” Billy Duberstein wrote in The Motley Fool.

Matthew Makowski, author at Investment U, thinks the sector’s growth is hard to ignore. “It’s high time investors take notice,” he told ETF Trends.

Disclaimer Past performance is not a reliable indicator of future results.

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