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MJ: The latest news on marijuana stocks and a speculative ETF

Written By | May 25, 2018

WASHINGTON. The lure of marijuana stocks (and marijuana ETFs like MJ) is the possibility that this effectively UNcontrolled substance is a risk that, “for sure,” will make speculators rich. The problem is that these stocks and ETFs are acutely prone to severe headline risk. The other problem: nothing on Wall Street is “for sure.” (Check out our most recent article on the latest speculative investment in this sector.)

MJ: How are marijuana stocks performing these days?

Note the following price-action chart on MJ, the most diversified, primarily marijuana-based ETF currently available on the market.

MJ, marijuana sector

Market performance of MJ from its inception until the present time. Headlines quickly drive this speciulative ETF up and down.

MJ (formerly listed as MJX) had previously existed as a failing ETF geared toward tracking the Latin American real estate sector. The fund-runners decided to repurpose their failing fund last December 2017. First, they renamed the fund after divesting the Latin American real estate sector holdings.

Then, they shifted the portfolio of this born-again ETF into a broad section of publicly traded marijuana companies. Given the more liberal marijuana policies of Canada, that’s where most of the publicly traded marijuana companies are still based, so MJ’s holdings are primarily built in that volatile sector.

The financial news media quickly picked up on the marijuana story. In turn, numerous articles on this still controversial sector caused a great deal of interest among speculative investors. As a result, early in 2018 it is easy to see in the preceding chart the January double-spike in investor interest and price appreciation these articles kicked up.

The downside of PR hyperbole: Headline risk always shows up. This time, it’s the “Sessions Effect.”

But, although Mr. Market gives, he also taketh away. Around the turn of the month, U.S. Attorney General Jeff Sessions threatened to enforce the stringent Federal marijuana laws still on the books. He aimed his remarks at states like Colorado that ignored Federal statutes by “legalizing” medical and/or recreational marijuana use.

Marijuana stocks in general and MJ in particular took a substantial hit when the AG’s remarks hit the wires. This single speech inspired panic, causing a mass-dumping of most stocks in this sector. Again this is easy to see in the preceding chart. (We term this the “Sessions Effect.”) Like much of the rest of the market, the marijuana sector bottomed in early April. One again, you can see this easily on the chart.

The sector has since rebounded somewhat since then. But is essentially flat when compared to that February, post-Sessions action.

Follow the Charts

In the sub-chart below, also note the parallel action in MJ’s volume, which tracks the period in Chart 1. After the post-Sessions selloff in shares, volume in this sector has yet to recover.

MJ trading volume

Trading volume for MJ from inception to present. Green for up days, red for down. Note the dual Jan-Feb 2018 news spikes at the first and second white vertical lines. The big February downspike was caused by the “Sessions Effect.” Volume has been down ever since.

We provide this information to balance out what, on the surface at least, seems like a highly attractive investing story. We believe that, over time, it’s a virtual certainty that the marijuana sector will become viable for “normal” investors, as opposed to speculators. The problem is, nobody knows when.

Clearly, current or former investors in MJ and other marijuana ETFs and stocks, got chastened by that early February Sessions Effect massacre. Volume has dried up considerably, and probably won’t return until we get more clarity on the legality of marijuana products under Federal laws, rules and guidelines.

Marijuana stocks: A negative outlook for some

After the initial flurry of pro-marijuana stock articles in January, Forbes and a few other outlets rushed to publish vigorous rebuttals, again citing (as we do) the legal and speculative risks that still dominate the marijuana investing sector.

The Motley Fool, in particular, weighed in on the negative side of the argument, although they tended to use their rebuttal articles as a way to direct potential investors toward the site’s paid content.

Nonetheless, in articles posted herehere and here, the Motley Fool still lays out a persuasive case against loading up on marijuana stocks and/or ETFs.

What to do if Mary Jane and MJ still hold your interest

According to the previously cited Yahoo Finance piece, another catalyst may be brewing that could get marijuana investors excited again.

“Next month, Canada could become the first developed country in the world to legalize adult-use cannabis. This latter expectation seems to be all but certain, with legal sales expected to commence in August or September.”

As always, however, watch out for that magical word “could.” As Yogi Berra notably said, “It ain’t over ‘til it’s over.” Timelines can stretch out, and, as we know here from the big Republican FAIL to overturn Obamacare entirely, things don’t always work out. If that’s the case, Mr. Market will extract the usual price from speculators.

That means, as we’ve noted before, if you insist on investing in the marijuana sector, the MJ ETF is probably the safest way to go, relatively speaking. The main reason: the ETF hedges its marijuana holdings to some extent, with tobacco stocks and Scott’s Miracle-Gro (SMG).

Tobacco stocks and – wait for it – Scott’s Miracle-Gro, bro. Really

The tobacco companies, like Altria (MO) may seem to be an anomaly. But most of them have been hovering around the edges of a potential marijuana industry. With their mass-manufacturing capacity still available as tobacco use declines, they are fully capable of ramping up the production of (presumably) legalized marijuana products. They also sell vaping devices and possess technologies that easily adapt to play nicely with cannabis.

As for Scott’s – although they don’t broadcast the fact, they’ve long offered special lighting and hydroponic hardware geared toward the marijuana industry, and are, even now, booking support sales in this sector. No, this won’t rival your tomato patch in importance to the company. But they’ve got a key niche in the marijuana market that could blossom further if laws and customs change

Although MJ is not exactly “safe,” it is set up to be more stable and broad based than investments made in individual stocks or marijuana-only ETFs. Note: We’re not recommending MJ here. We’re not registered investment advisors, just financial reporters and active online investors. But if we ever get tempted to get into this sector ourselves, MJ is the way we’d likely go about it.

But only with money we could afford to lose.

Have a great holiday weekend.

— Headline image: Clearly, in the 1930s, the Feds hated marijuana even more than they do today. (U.S. government image in the public domain.)



Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17