6 Pot Stocks That Experience an Increase in Buying From Hedge Funds

Despite Poor Market Conditions, Hedge Funds and Institutional Investors Bought These 6 Pot Stocks During Q4

Institutional Buying in Canopy Growth, Aurora Cannabis, Cronos Group, Aphria, Tilray and HEXO Increased in Q4

2019 was a year to forget for cannabis stocks and investors alike. The fourth quarter of 2019 saw many retail investors dump their positions in underperforming pot stocks for a variety of reasons including tax-loss purposes.

While most investors succumbed to the panic-induced selling pressure that gripped the cannabis sector, it seems a more sophisticated group of investors were actually adding to or opening new positions in multiple cannabis stocks during the fourth quarter.

According to SEC form 13F filings courtesy of the website Whale Wisdom, Canopy Growth (TSX: WEED) (NYSE: CGC) (FRA: 11L1), Aurora Cannabis (TSX: ACB) (NYSE: ACB) (FRA: 21P), Cronos Group (TSX: CRON) (NASDAQ: CRON) (FRA: 7CI), Aphria (TSX: APHA) (NYSE: APHA) (FRA: 10E), Tilray (NASDAQ: TLRY) (FRA: 2HQ) and HEXO (TSX: HEXO) (NYSE: HEXO) (FRA: 74H) all experienced a large increase in buying from hedge funds and other institutional investors.

As per Investopedia: “SEC Form 13F is a quarterly report that is filed by institutional investment managers with at least $100 million in equity assets under management. It discloses their U.S. equity holdings to the Securities and Exchange Commission (SEC) and provides insights into what the smart money is doing.”

The type of investment firms that are required to file SEC 13F forms includes hedge funds, mutual funds, pension funds, registered investment advisers, insurance companies and trust companies.

You’ll probably notice that the list below does not include any of the cannabis sector’s many large U.S. multi-state operators (MSOs) and is solely made up of top Canadian licensed producers (LPs) that trade on major U.S. exchanges such as the New York Stock Exchange (NYSE) and the NASDAQ Stock Exchange.

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The reason for this is two-pronged. First, most large institutions like hedge funds or pension funds will only trade stocks that are listed on top tier national stock exchanges like the NYSE and NASDAQ in America and the Toronto Stock Exchange (TSX) in Canada. Seeing as the majority of MSOs are listed on the Canadian Securities Exchange (CSE) with a U.S. cross-listing on the OTC Markets Exchange this excludes these companies from being eligible for inclusion in most institutional funds.

Why don’t large scale MSOs like Curaleaf (CSE: CURA) (OTCQX: CURLF) and Trulieve (CSE: TRUL) (OTCQX: TCNNF) just uplist to the TSX, NYSE or NASDAQ then? The reason for this brings us to the second prong of the answer to the question above. Due to cannabis still being illegal in the United States at the federal level, companies with U.S. based operations that deal directly with marijuana that contains THC are not allowed to list on U.S. national exchanges.

The situation is similar in Canada with the TSX on multiple occasions threatening to delist companies for having U.S. based cannabis operations. This is also the reason why we only see large Canadian LPs listed on the NYSE and NASDAQ and none of the MSOs. Adult-use cannabis is legal in Canada at the federal level so the NYSE and NASDAQ have no issues with allowing Canadian pot stocks to list on their exchanges.

However, thanks to the 2018 U.S. Farm Bill, Canadian TSX listed companies are now allowed to have hemp-based operations in the United States without having to fear being delisted. Canadian LPs such as Canopy Growth and Cronos Group moved quickly to establish a presence in the U.S. hemp space. We’ve also seen American hemp operators like Charlottes Web (TSX: CWEB) (OTCQX: CWBHF) uplist from the CSE to the TSX big board as a result of the Farm Bill’s new hemp rules.

With that said, below is the full list of cannabis stocks that experienced a large increase in their institutional holdings during the fourth quarter of 2019.

Canopy Growth (NYSE: CGC) | Q4 2019 13F Holdings