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Is Amplify’s Cannabis ETF in a regulatory recession?

The cannabis theme has taken a hit in 2022, with the Amplify Seymour Cannabis ETF plunging by half. However, long-awaited regulatory reforms are likely to revive it, with top holdings Curaleaf, Green Thumb, Tilray and Trulieve recently announcing positive earnings.

- Top holdings in Amplify Seymour Cannabis ETF all announced growing third quarter revenues

- Cannabis legalisation in the US and Europe is set to drive future growth

- The cannabis market is predicted to reach $82bn by 2027

The Amplify Seymour Cannabis ETF [CNBS] has fallen by 50.6% in the year-to-date, but cannabis stocks were trading up at the start of the fourth quarter thanks to US President Joe Biden’s historic cannabis reform.

Actively managed by cannabis sector expert and CNBC presenter Tim Seymour, 80% of Amplify Seymour Cannabis ETF portfolio features companies with half or more of their revenue from the cannabis industry.

Cannabis stocks have suffered lately, with policy limitations slower to reform than investors previously hoped. This has triggered what BTIG analyst Camilo Lyon called a regulatory recession” for the sector last May.

On 6 October, however, Biden announced he would pardon previous federal offences of cannabis possession, sparking a 20.6% jump for the Amplify Seymour Cannabis ETF. 

This month, voters in the US states of Maryland and Missouri approved legislation that would legalise recreational cannabis. The fund moved up 3.3% on 10 November, reflecting the news.

Cannabis is legal for adults in 21 states and in Washington, DC, while medical use of the drug is legal in 37 states.

Curaleaf’s positive earnings drive up fund

The top four holdings in the Amplify Seymour Cannabis ETF as of 21 November are Curaleaf Holdings [CURLF] with a weighting of 11.52%, followed by Green Thumb Industries [GTBIF] at 10.52%, Tilray Brands [TLRY] at 8.40% and Trulieve Cannabis Corp. [TCNNF] coming in fourth with a weighting of 6.20%. All appear to be growing their revenues, according to recent earnings reports.

At the top of the list, Curaleaf Holdings delivered positive earnings for its third quarter on 7 November this year, with revenue of $340m. The result represents a 7% year-over-year increase and 1% growth sequentially. It said it had opened six new retail dispensaries in Arizona, Nevada and Florida, bringing it to 142 stores in the US.

Meanwhile, Greenleaf’s Q3 revenues were up 12% year-over-year to $261m, representing a 3% sequential increase. On 7 October, Tilray reported its first quarter earnings for 2023, during which it earned $153.2m, up 191.8% from the previous quarter. More recently on 9 November, Trulieve Cannabis Corp reported revenue up 34% to $301m for the third quarter of 2022.

Germany’s cannabis legislation in focus

Overall, the outlook for the cannabis industry looks positive, and there’s good reason to believe companies in the Amplify Seymour Cannabis ETF might benefit from Biden’s review of cannabis classification. In 2023, legislators are also likely to green-light the SAFE Banking Act, which is slated to protect financial institutions who serve cannabis-related businesses.

“My goal is to be investing in the companies that have real businesses today, but the ones that are actually positioned for tomorrow. I have to balance this,” said Seymour in September, speaking on the Trade to Black podcast. Curaleaf is a good example of a company that has the ability to grow its margins in the next six months, he said. 

The swiftly changing European market should also be taken into account, said Seymour. Just last month, Germany announced its plans to decriminalise possession of small amounts of cannabis, and approve its sale for recreational purposes. “Tilray along with Curaleaf have the most optionality to Europe,” said Seymour. He added that the “the ability to consolidate and be first mover” in the medical market was something “worth adding exposure to” for investors.

Analysts bullish about cannabis stocks

With a projected compound annual growth rate (CAGR) of 24.3%, the global cannabis market is anticipated to grow to $82.3bn by 2027, according to a new report by MarketsandMarkets. Forthcoming legalisation is likely to be a major contributor to this growth.

“The stigma associated with cannabis products is also fading, as well as the demand for innovative recreational products, amongst many other factors driving this industry,” said the report. Authors of the report also predict that North America will reach the largest market share in the cannabis market.

At CNN Business, 18 analysts offering 12-month price targets for the Curaleaf share price came to a median target of $8.57, which would be a 31% jump from its last close on 18 November. Twenty analysts polled are offering a median 12-month price target of $19.50 for Green Thumb shares, suggesting a 50.2% upside from its close on 18 November. For Tilray stock, 16 analysts at CNN Business are offering a median target of $3.96, a 2.6% increase from its last close. For Trulieve, 19 analysts came to a median estimate of $26.24 for shares in the next year, gains of 106.6% above its last close.

 

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