Investing in cannabis using ETFs as Americans favor cannabis over tobacco
Americans are now smoking more cannabis (16%) than tobacco cigarettes (11%) per a recent study — but the cannabis sector still has a long way to go:
- Tobacco: The world’s largest tobacco company, Philip Morris International, trades at a $150B market size with $31B in sales.
- Cannabis: The largest publicly traded cannabis company Curaleaf (OTC:CURLF) has a $4.2B market cap with $1.2B in sales.
Sector heats up: Money has flowed back into the sector with cannabis stocks rising over the past month — outperforming the S&P 500. Prospects for legalization in Germany — the most populous European country — have gained traction in recent months (DW).
“The political will is there,” but international laws, bureaucracy and tax laws are slowing down legalization. Economist Justus Haucap sees neighboring countries watching closely — with successful legalization sending a positive signal.
Stocks and growth diverge: Despite growing (legal) marijuana use, stocks are trading near all-time lows. The industry is struggling with falling prices, slowing sales amid a recession and growing losses — leaving many pot stocks trading like penny stocks.
- Still, with the industry falling nearly 80% from its peak, cannabis stocks are looking much more attractive than at their highest levels.
- Cultural acceptance is growing, and states continue decriminalizing. All that’s missing is U.S. federal legalization — which is moving at the pace of your stoned roommate.
The case for ETFs: Investors are playing with fire in such a speculative industry, and picking winners can be difficult, making ETFs an attractive choice.
One option: The AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) gives a balanced exposure across the industry – farmland/greenhouse owners, growers/producers, retailers and support equipment companies.