The marijuana industry remains a breeding ground for some of the fastest growing companies, and for those willing to invest in these companies it can be a far from obvious choice as to which will be most profitable. The top players are always a good choice, but smaller cap companies can offer increased upside as well as a range of new opportunities. It seems many investors these days prefer exchange-traded funds (ETFs) as their vehicles of choice and as the most secure way to diversify without absurd management fees.
New marijuana ETFs emerge every so often, providing unique sets of exposure for investors to consider. AdvisorShares Pure Cannabis ETF (NYSE MKT: YOLO) is an active fund managed by Dan Ahrens and his team. They have selected a mix of cannabis stocks that they wager will outperform the overall cannabis market. Many wonder what criteria these smaller ETF’s use when choosing candidates and if they’re better off picking their own bundles of stocks. Rest assured these managers do come with years of experience in foreseeing market conditions; however, predicting how the industry will play out is no easy feat. Let’s take a look at their top five selections.
Top 5 AdvisorShares Pure Cannabis ETF (NYSE MKT: YOLO) Holdings
* Ranked in order of highest % of portfolio weight as of April 28, 2019.
- The Green Organic Dutchman (OTCQX: TGODF) | Weight = 7.70%
- CannTrust Holdings (NYSE: CTST) | Weight = 7.35%
- Organigram Holdings (OTCQX: OGRMF) | Weight = 7.15%
- Aphria (NYSE: APHA) | Weight = 6.83%
- Innovative Industrial Properties (NYSE: IIPR) | Weight = 6.78%
Source: AdvisorShares Pure Cannabis ETF
From this data, we can tell that the ETF is focusing on the small to mid market cap ranges, and has not chosen any of the largest market cap behemoths to throw into the mix. For a fund that aims to differentiate from the index fund alternatives, it makes sense as to why they selected some less popular names in cannabis.
Standing out Among the Crowd?
It will take more than a lucky guess or some previous stock gains to justify anyone pick over the others. It seems the managers of the YOLO ETF have their eyes set on what might just be some fierce competitors in the long run.
TGODF – The Green Organic Dutchman caters to premium users and some of the highest paying customers. There is a growing number of consumers that prefer high-quality organic flower and will go to great lengths to get it. It’s becoming more and more of a rare commodity as companies who don’t specialize in cultivation are producing less than subpar flower. Analysts predict TGOD’s annual production capacity to reach 219,000 kg, putting them among the top growers in Canada.
CTST – CannTrust recently uplisted on the NYSE and its sales have really taken off. Revenue has doubled between Q4 2018 and Q1 2019. In an industry where profits are far from few and operations are cash squeezing, it’s reassuring to own a cannabis company that is bringing in a solid amount of revenue. With this revenue comes a chance to improve bottom line performance and build more brand recognition in the Canadian medical and recreational space.
OGRMF – Organigram is the largest grower in the Canadian Maritimes, and the company has seen positive results in pre-tax adjusted operating earnings. Organigram recently reported adjusted EBITDA of $13.3 million for Q2 2019. Revenues continue to come in, and expansion is on the horizon. Organigram also recently submitted their application to list their shares on the NASDAQ stock exchange. If all goes to plan, investors can expect to see a “NASDAQ bump” like many of its peers before them.
APHA – Aphria followed some of it’s larger peers and began trading on the NYSE in late 2018. Soon after short sellers attacked the stock and it plummeted from CDN $20 down to as low as CDN $5. The stock is currently sitting around CDN $9. Regardless it is still a significantly low-cost producer in Canada. With a shortage of cannabis, many end products are being sold for $8 – $15 per gram so the lower a producer can get their cost per gram down the more valuable they are to the legal markets.
IIPR – Innovative Industrial Properties has a completely different business model than the other four stocks covered in this article. In fact, they have a different business model than almost any other cannabis stock in North America. IIPR is a real estate investment trust (REIT). The company is focused on the acquisition, ownership, and management of specialized industrial properties leased to experienced, state-licensed operators for medical-use cannabis facilities. IIPR also offers a dividend, something that no other major cannabis stock does. This alone should appeal to investors.
It seems the strategy that YOLO is using counts on second-tier players ascending into even larger market caps. The ETF is looking to capture large returns once these stocks make their moves to new highs. Only time will tell if Ahrens is right.
Stay connected to the story and visit the AdvisorShares Pure Cannabis ETF website for full details.