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ETFMG launches the US Alternative Harvest ETF

On the 12 May, ETFMG launched the US Alternative Harvest ETF [MJUS], which looks to benefit from the burgeoning business of cannabis in the US as the country eases rules and regulations.

The ETFMG US Alternative Harvest ETF seeks to give investors exposure to cannabis companies operating in the US, including multi-state operators directly involved in the cultivation, production, marketing and distribution of cannabis or cannabis-related products.

The ETFMG US Alternative Harvest ETF opened at $10.13 before closing the day down 3.6% at $9.77. Since then, the fund has climbed 2.35% to close at $10.00 on 24 May. As of this date, the fund had assets under management totalling $4.76m and 33 holdings.

ETFMG previously launched the Alternative Harvest ETF [MJ] on 12 March 2015. The fund, which focuses on the global cannabis market, has climbed 35.33% so far in 2021 (through 24 May).

 

Growing US cannabis legalisation

According to ETFMG, the US is the largest cannabis market in the world. Legal cannabis sales, including consumer and medical for conditions such as epilepsy, exceeded $17.5bn in 2020, up 46% from 2019. The ETF issuer forecasts the market to reach $41.3bn in 2026.

This rosy outlook is off the back of 17 US states, including Arizona and most recently New York, legalising recreational cannabis use. There are growing expectations that US president Joe Biden could end federal cannabis prohibition.

“With voter support for federal legalisation initiatives at an all-time high, combined with the positive economic impact cannabis legalisation would provide through job creation and increased tax revenues, it is widely anticipated that the current administration will pass federal legislation providing meaningful cannabis reform, which would greatly benefit existing US cannabis related businesses,” said Jason Wilson, cannabis research and banking expert at ETFMG, according to ETF Strategy.

"It is widely anticipated that the current administration will pass federal legislation providing meaningful cannabis reform" - Jason Wilson, ETMG

Chuck Schumer, US Senate majority leader, called for cannabis legalisation in April. Meanwhile, congressmen Dave Joyce and Don Young introduced the Common Sense Cannabis Reform for Veterans, Small Businesses and Medical Professionals Act on 12 May. This aims to remove cannabis as a controlled substance, paving the way for federal legalisation.

Meanwhile, the SAFE Banking Act of 2021 has been reintroduced, which would provide the cannabis industry access to financial services.

 

Betting on regulatory softening

It is a positive atmosphere in which the ETFMG US Alternative Harvest ETF has launched.

As of 25 May, Curaleaf [CURA.CN] was the top holding in the fund, with a weighting of 10.23%. This was followed by Green Thumb Industries [GTII.CN] with an 8.51% weighting, Cresco Labs [CL.CN] with 7.23% and Trulieve Cannabis [TRUL.CN] with 7.16%.

Curaleaf’s share price has climbed 6.5% so far in 2021 after closing at CA$17.47 on 21 May. The Canadian firm, focused on consumer cannabis products, recently released record-breaking first quarter results with revenues hitting $260m, up 170% year on year. This was driven by new products, such as its THC-infused beverage enhancer.

Meanwhile, Trulieve’s share price has risen 9.6% in the year to date to CA$46.80 on 21 May. It also posted record first quarter revenues of $193.8m, up 15% from the year-ago period, and recently sealed a $2.1bn deal to buy Harvest Health, which would boost its footprint to 11 US states.

Kim Rivers, Trulieve CEO, told Yahoo Finance: “It’s also important that you’re proving that profitability because of the limitations that we have in this industry due to federal constraints.”

"It's also important that you're proving that profitability" - Kim Rivers, Trulieve CEO

Some uncertainty as to when the new US administration would look to bring in potential legalisation has weighed on cannabis stocks.

Even with evidence that action is about to be taken, concerns remain. 

Matt McGinley, an analyst at Needham, wrote in a note seen by Yahoo Finance that the New York cannabis market could be worth over $5bn “at steady-state.” However, he added that until the regulators define the market structure such as dispensary counts, it will be “hard to gauge how big the opportunity is”.

Speaking to Business Insider, Rivers remarked that there is a “generational opportunity” for people to invest in the sector and she expects to see “larger institutional capital coming in as soon as they're able to do so”.

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