In this Marijuana Market Update, I answer a pair of viewer questions.
The first? Whether midterm elections should influence your investing. Then I discuss the Cannabis Growth ETF (NYSE: BUDX).
Should Midterm Elections Influence Your Cannabis Investing?
Don emailed me at Feedback@MoneyandMarkets.com:
Hi, Matt. I try to watch all your cannabis updates. I may have missed it, but I don’t recall seeing anything about major multistate operators like Trulieve, Curaleaf, Cresco Labs and Green Thumb. Since prices are down, wouldn’t it be wise to allocate a small position knowing that some form of legislation could get passed this year for midterm elections seeing how both parties have made proposals? Thanks for your thoughts, Don.
Thanks for your question, Don.
Let’s look at all four of these companies side-by-side:
As you can see, it’s been a virtual bloodbath for all four of these major cannabis players. Green Thumb Industries Inc. (OTC: GTBIF) is the best performer, and it’s down 43.1%.
My advice on the midterms: Don’t rely on Congress to do much related to cannabis.
Yes, there are different proposals from both sides of the aisle, but Congress is so contentious. Even though their proposals are somewhat similar, one side will vote against the other out of spite.
This week, the House of Representatives passed banking reform related to cannabis for the sixth time. Such legislation would give cannabis companies access to banking services currently prohibited under federal law. It would allow banks to extend lines of credit to cannabis companies, going a long way to help the industry’s stability.
Previous iterations of this legislation have included a stand-alone bill that never made it out of the Senate, and an amendment to the National Defense Authorization Act — a bill that passed both chambers, but with cannabis banking stripped out.
Both sides of the House have championed cannabis banking reform. However, in the Senate, some want to see a broader overhaul of cannabis laws passed before any banking reform is adopted.
This political wrangling is part of the reason these multistate operators (and the broader cannabis market, for that matter) have seen a massive drop in stock value in the last 12 months.
The Takeaway on Midterm Elections
The prospect of Congress passing any kind of cannabis measure before the midterm elections is slim at best. I wouldn’t recommend investing on that premise alone.
But the drop in stock prices does present a potential buying opportunity for investors looking to break into the cannabis market.
One thing to keep in mind is that all four of these MSOs rank in either neutral or bearish in my Cannabis Rating System:
- Trulieve Cannabis Corp. (OTC: TCNNF) ranks a 55
- Cresco Labs Inc. (OTC: CL) scores a 51
- Curaleaf Holdings Inc. (OTC: CURLF) scores a 35
- Green Thumb Industries Inc. (OTC: GTBIF) scores a 26
The system scores cannabis companies against each other on momentum and value metrics to generate an overall score. The higher the score, the more bullish we are on it. It only rates cannabis companies, not the broader market.
It’s very similar to our Green Zone Ratings system — which you can use for free anytime.
When cannabis legislation passes, it will lift the entire cannabis market. However, due to their larger share of the cannabis market, these multistate operators will likely see stronger initial gains.
Other cannabis stocks will follow suit, but I think it will take time for smaller companies to see the gains that larger ones will see right off the bat.
But I would not invest in any cannabis companies hoping that legislation makes its way out of Washington during the midterm elections.
What’s Up With BUDX?
Now, the second question.
Doug also emailed me and said:
Watch your podcast every week. Have a small position in BUDX ETF that I was ready to liquidate due to hitting my stop-loss. When I look at the action (price change, volume, etc.), it doesn’t show anything, almost like the fund is closed. What can you tell us about what’s happening with the BUDX ETF? Thanks, Doug.
Thank you for your question!
Doug is referring to the Cannabis Growth ETF (NYSE: BUDX). It invests in cannabis companies around the world, and it benchmarks its performance against the Cannabis World Index and the S&P 500.
BUDX started as a cannabis mutual fund by Foothill Capital Management and rolled over into an exchange-traded fund (ETF) in 2021. It is an actively traded ETF that holds MSOs as 21% of its net assets. Click here for more information on its holdings.
From June 30, 2020, to June 30, 2021, the fund had returned investors 94.5%, but its assets under management were just over $5 million.
It competes in a market that already has at least five other ETFs:
- ETFMG Alternative Harvest ETF (NYSE: MJ).
- AdvisorShares Pure US Cannabis ETF (NYSE: MSOS).
- AdvisorShares Pure Cannabis ETF (NYSE: YOLO).
- Global X Cannabis ETF (NYSE: POTX).
- Cannabis ETF (NYSE: THCX).
Since February 2021, all of these ETFs are down at least 30%.
As for BUDX, the ETF is down around 36% since its inception in late September.
It has seen a slight rise — actually greater than all but MSOS in recent days — but is still down overall.
I hope that answers your questions, Don and Doug. For sending them, we will hook you up with some Money & Markets gear as our way of saying “thanks.”
You, too, can get Money & Markets swag by submitting a question for me, Adam O’Dell or Charles Sizemore that we use in any of our videos. Just send us your questions and feedback.
Where to Find Us
Coming up this week, we’ll have more on The Bull & The Bear podcast, so stay tuned.
Make sure you subscribe to our YouTube channel and get notified each and every time we post a new video.
We have a lot of great weekly video features on our channel, including:
- Ask Adam Anything — Where I get to sit down with chief investment strategist Adam O’Dell and ask him any question (from you or me) and get his insights into the stock market.
- Investing With Charles — Green Zone Fortunes co-editor Charles Sizemore and I talk about all things related to stocks and the economy, including comparing stocks to give you the best investment advice.
- The Bull & The Bear — Our weekly podcast where I show you the trends and analysis that moves the market.
All of these series are on our YouTube channel.
Safe trading,
Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.
