WASHINGTON, January 16, 2018: A few columns ago, we promised our readers we’d do a bit more research on the risky, irrationally exuberant world of cannabis stocks. Our original piece was prompted by Attorney General Jeff Sessions’ recent move to re-impose Federal anti-marijuana laws across the country.
One result of Sessions’ surprise action was an absolute massacre in a batch of tiny, virtually unknown but publicly traded marijuana stocks. Hard hit as well: MJX. That’s the trading symbol for NYSE Arca-listed “ETFMG Alternative Harvest,” an ETF that tracks these and other related stocks.
Until Sessions’ announcement, most cannabis stocks as well as MJX were flying higher than most legalized pot customers. As of today, these risky, battered cannabis stocks are trying to claw their way back up to their previous highs. The same holds true of that popular cannabis-based ETF, which our brokerage describes thusly:
“The investment seeks to provide investment results that- before fees and expenses- correspond generally to the total return performance of the Prime Alternative Harvest Index. The fund will invest at least 80% of its total assets- exclusive of collateral held from securities lending- in the component securities of the index and in ADRs and GDRs based on the component securities in the index. The index is concentrated in the Pharmaceuticals and Tobacco industries and tracks the performance of the exchange-listed common stock (or corresponding ADRs or GDRs) of companies across the globe. The fund is non-diversified.”
“Alternative Harvest,” of course, is the lawyer-sanitized euphemism covering cannabis stocks and cannabis-related companies.
Those marijuana companies that deal more or less directly with the agricultural product are currently classified as “pharmaceutical companies,” just like big pharma companies including Merck (MRK), Abbot Labs (ABT), Johnson & Johnson (JNJ) et. al. That’s likely because they’re on record as creating and selling products exclusively for the medical marijuana sector. This presumably serves to keep these companies at arms’ length from whatever the current U.S. opinion on this business turns out to be.
Investment-wise, we’re not entirely certain where this budding agricultural – oops, pharmaceutical industry – is going next. We’re also unsure whether the select stocks that represent the industry in MJX will settle down from their current level of volatility. But whatever the case, there’s no harm in checking out a few representative cannabis stocks currently held by MJX to see if there’s investible Acapulco Gold in them thar hills.
Straight cannabis stocks, eh?
On a percentage basis, the greatest percentage of stocks included in the MJX portfolio are Canadian companies. These are listed either on the Toronto Stock Exchange (TSX or TSE) or on Toronto’s small stock exchange, known as the TSX Venture Exchange (TSXV or TSX-V). Broadly speaking, these exchanges are for Canadians the rough equivalent of our own NYSE and NASDAQ respectively.
Why Canada and Canadian companies? This seems to make no sense, as marijuana plants produce more of what the customer wants when grown in warmer climates, right? Well, if you ever shop for more conventional plant products in your friendly local Safeway, you’ll note that quite a few – particularly tomatoes – come from our friends to the north in winter time.
This may seem dramatically counter-intuitive, given that most of Canada is effectively frozen tundra around this time of year. But in response to this, the greenhouse vegetable industry has become huge in Canada over the years due to hydroponics. That enables Canada’s agricultural workers to create ideal conditions for heat-and-humidity loving crops like tomatoes, and, by logical extension, marijuana. Even in sub-zero temperatures.
Not surprisingly, many American cannabis growers also employ the same techniques. But Canadian companies have been involved in hydroponic, greenhouse-based farming on an industrial scale for a very long time. That’s true for Canada’s marijuana industry as well.
Legalized Canadian marijuana production took off there after passage of the 2001 Marijuana for Medical Access regulations. Recently, these regulations were broadened and replaced by the 2016 passage of Canada’s Access to Cannabis for Medical Purposes Regulations (ACMPR).
Beneficiaries of this act include many of the companies held by MJX. That ETF’s largest holdings in this area include Cronos Group Inc. (PRMCF), Canopy Growth Corp. (TWMJF), Aurora Cannabis Inc. (ACBFF), MedReleaf Corp. (MEDFF), CannTrust Holdings Inc. (CNTTF), and GW Pharmaceuticals (GWPH). The latter is actually a large UK company whose ADR shares (American Depository Receipts) trade in the U.S. on the NASDAQ.
None of these companies is currently profitable. Given the volatile nature of their shares, I’d generally regard these companies as somewhat grown-up penny stocks that have been bid way up by optimists high on these companies’ potential for growth.
As of 1:30 p.m. ET Tuesday, per share prices for these cannabis stocks are as follows:
- PRMCF: $8.13
- TWMJF: $29.42
- ACBFF: $9.67
- MEDFF: $19.09
- CNTTF: $8.78*
- GWPH: $130.55
*(NOTE: American investors will find CNTTF shares trading on the American OTC “Grey Market.” This is treacherous territory for all but the most seasoned investors. You have to fish for a price here by blindly bidding and guessing based on experience, since no formal bid or ask prices are posted.)
At the moment, I would regard all the stocks in the above list as crap shoots. All of them are losing money at the moment, which is not always a good omen. Balancing this is the simple fact that Amazon.com lost more money year after year than most companies made. Yet look at them now. With wildly speculative, potentially high-growth companies in brand new investment sectors, it’s anyone’s guess as to which company – if any – will make money or even survive.
I don’t have a horse in this investment race. At least not yet. The threat to this growing industry in the U.S. will remain until the DOJ’s recent move to enforce Federal marijuana regs is ultimately resolved.
Motley Fool goes out on a limb, offering a couple of cautious recommendations:
“The most obvious choice is GW Pharmaceuticals (NASDAQ:GWPH), a $2.2 billion biopharmaceutical company that’s discovered more than five dozen cannabinoids from the cannabis plant. The other sizable company that could be considered a play on the marijuana industry is Insys Therapeutics (NASDAQ:INSY), with a market value of $2.4 billion.”
The Fool’s latter recommendation is also included in the MJX portfolio. Phoenix-based Insys is another money-losing specialty pharmaceutical company that plays in the controversial opioid pain-relieving sector. Given the stiffening public and governmental attitudes toward opioids, it’s clearly in Insys’ best interests to develop a significant portfolio of cannabis and cannabis-derived pain reduction products. After all, that’s really what medical marijuana is supposed to be all about.