Cannabis Investing: US vs Canada, which pot stocks are best?

By Kirsteen Mackay


With cannabis legalization ramping up across Canada and the US, pot stocks have been garnering interest again. Over the past five years, US states have been gradually decriminalizing cannabis and now it’s widely accepted throughout North America and Canada.

During this time, many companies have ventured into the space. Some for a short, unsuccessful time, while others reign supreme. The rise of cannabis from outlawed drug, to accepted medicine has made shareholders rich and shareholders poor along the way. Now, as a Biden administration approaches, the popularity of cannabis investing is soaring again. During a pre-election debate Joe Biden’s running mate Kamala Harris said they’d decriminalize pot at a federal level in the United States. Canada already did this in 2018, but for the US to do this is revolutionary. This led many of the top US and Canadian pot stocks to enjoy a revival in fortunes.

Top pot stocks

Some popular US pot stocks enjoying a rally in recent weeks include Trulieve Cannabis Corp (CNSX: TRUL), TerrAscend Corp (CNSX: TER) and Green Thumb Industries Inc (CNSX: GTII). Meanwhile, Canadian pot stocks include Canopy Growth (NASDAQ:CGC), Aphria Inc (TSE: APHA) and Village Farms International Inc (TSE: VFF).

In the run up to the election US cannabis stocks were roaring, but they fell flat after the event. It was then the turn of Canadian stocks in the sector to pick up the baton. This was all very confusing for investors, but has to do with the way they’re structured.

Because Canada legalized pot at the federal level 2 years ago, many Canadian cannabis companies could legally list on US stock exchanges. This led to racing fortunes for Canopy Growth Corp (TSE: WEED | NASDAQ:CGC) and Aphria Inc (TSE: APHA | NASDAQ: APHA). During 2018 Canopy rose 13%, but during those intervening months experienced extreme volatility, including a 130% gain between August and October. Aphria tells a similar tale, although its stock price fell 61% throughout 2018 despite enjoying a couple of major spikes in activity. Between August and September that year, the Aphria share price rose 216%.

The recent boost for Canadian cannabis companies probably results from the fact they’ve had more time to infiltrate both the US and Canadian markets. This gives them a head start on some of their US counterparts.

#CANNBIS: The great irony is that US companies are in the biggest and most exciting cannabis mkt in the world – BY FAR…there really is no other mkt… Yet due to federal dynamics they cant list here. The OTC mkt trades with solid liquidity however. DO YOUR HOMEWORK (3)

— Tim Seymour (@timseymour) November 23, 2020

Choosing a Cannabis ETF

While cannabis is already in widespread use, decriminalization at the US federal level allows banking institutions and some ETFs to venture into the cannabis space. US based cannabis companies have up until now only been listed on Canadian stock exchanges, while also being sold in the US via over-the-counter (OTC) markets. This has been fine for retail investors looking to get in on the action, but it has deterred institutional investors and ETFs that were restricted from operating in the OTC markets. This could now bring a better selection of retail products to investors such as cannabis centred ETFs.

One example of an existing ETF is the low-cost Cambria Cannabis ETF (NYSEMKT:TOKE). Its holdings include UK pharma company GW Pharmaceuticals (NASDAQ:GWPH), US tobacco firm Altria (NYSE:MO), and Canadian cannabis player Canopy Growth. 

Another ETF is the Amplify Seymour Cannabis ETF (NYSE:CNBS). This is managed by Tim Seymour, an experienced investor in the cannabis space. It contains approximately 23 holdings across US and Canadian stocks. This ETF is up 29% year-to-date.

The largest cannabis ETF on the market by assets is the ETFMG Alternative Harvest ETF (MJ), this one is down over 10% year-to-date. Meanwhile, the AdvisorShares Pure Cannabis ETF (YOLO), the next biggest by assets, is up 36%.

The Medical Cannabis and Wellness UCITS ETF (LON:CBDX) is based in Ireland and covers targeted exposure to the rapidly expanding legal medical cannabis industry. It’s one for European investors. This ETF is up 14% year-to-date.

Rize Medical Cannabis and Life Sciences ETF (UK:FLWG  | US:FLWR) is another European one with a focus on global medical cannabis. This ETF is up nearly 22% year-to-date and can be bought in the US, Europe and the UK.

Is this another boom time for Cannabis Investments?

Meb Faber, CEO of Cambria Investment Management, recently said they use quantitative methods to make investing decisions. This includes looking back in time at the state of alcohol investments in the years following prohibition. What they determined from these alcohol sales statistics was that investor returns in the following decade were excellent, around 20%.

But the exciting thing from a cannabis perspective is that much of the best returns from the alcohol revival was after the sector had time to mature, so in the second half of that decade. With cannabis being legalized at a federal level we’re heading into a mature market and again the strong will survive, and riches will be there for the taking.

Alcohol and tobacco are naturally aligned with the cannabis space, so it should come as no surprise that US Fortune 500 alcohol behemoth Constellation Brands, Inc. (NYSE: STZ) has a major stake in Canada’s Canopy Growth. US based Acreage (ACRHF | ACRDF) is now partly owned by Canopy Growth and the two are planning a cannabis beverage launch next year. Meanwhile, Canopy is also invested in TerrAscend, which is also making a successful swing from the Canadian market to many US states. But it’s not all growth news for this company as it just announced the closure of five facilities and 200 redundancies as it streamlines operations.

Are Canadian cannabis stocks better than US ones?

Investing in cannabis is not for the faint-hearted and you need a clear understanding of the sector and its dynamics if you want to make money. Both Canada and the US have strong marijuana companies, but it’s those with the biggest institutional backing and strength of management that are likely to go the distance. The two are increasingly interlinked, and understanding the setup of an individual company is better than focusing on a specific country.

Nevertheless, volatility in this sector continues, and it’s an area where investors need to be careful because it’s easy to be burned. Investing in a cannabis ETF is preferable for many new to the space because it gives exposure at a lower cost and lower risk than picking stocks individually. 


Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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