The global push to legalize cannabis continues to gather steam as New York state voted this weekend to allow recreational marijuana use.
New York becomes the 17th U.S. state to do so and one of 36 that allows medical marijuana sales. The legislation will set up a licensing process for the sale of cannabis-related products and allow those over 21 to grow their own plants. The state expects to generate about $US350 million in tax revenue annually once the system is up an running.
New York is the fourth most populace U.S. state with 19 million people.
The vote follows a decision by Mexico’s Chamber of Deputies earlier this month to pass a bill fully legalizing marijuana. As a result, Mexico becomes the largest jurisdiction with a federal law. With 120 million people it is two-thirds bigger than Canada.
Here’s an update on a Canadian Exchange Trade Fund (ETF) which is benefitting from U.S. legalization.
The Horizons US Marijuana Index ETF (NE: HMUS) provides exposure to the U.S. cannabis industry with holdings in American companies listed in Canada.
The companies cannot list in the U.S. without a federal law, which may happen this year. Mexico’s decision puts more pressure on the U.S.
The units split three-for-1 in February and closed at C$9.78 Friday.
Performance: This ETF is up 146% in the last 12 months, with most of the gain coming after the U.S. election. It is up 38% year-to- date, despite a pullback that began mid-February.
Holdings: The ETF holds 30 companies of which the top four account for 40% of the assets. They are Trulieve Cannabis Corp., Green Thumb Industries Inc., Columbia Care Inc. and Cresco Labs Inc. These companies are involved in selling recreational pot and medicinal marijuana for pain management.
Discussion: The legal cannabis industry is developing at a rapid pace. The New York and Mexican decision follow a first of its kind drug industry takeover in January.
UK-based GW Pharmaceuticals Plc (NDQ: QWPH) which markets cannabis-based drugs to treat epilepsy is being taken over in a US $7.2 billion deal by an Ireland-based drugmaker Jazz Pharmaceuticals PLC. GW is the only company with U.S. Food and Drug Administration approval for cannabis-based treatments.
In a sign of the times, the Chicago Sun-Times reported that in the first full year of legalization in Illinois, pot sales reached nearly $670 million. This year it is expected to pass $1 billion.
The cannabis industry is in the second leg of a multi-year expansion. For patient investors able to live with the volatility, it offers long term gains.
It’s not clear how quickly the Biden administration will be to reform cannabis policy especially after they recently fired five White House staffers for admitting to prior cannabis use (Kamala got to keep her job though). The US situation is complicated by the huge conflict between federal and state laws. Since MJ remains illegal under federal law, proceeds from the cultivation, processing and distribution of cannabis are considered illicit making the cannabis companies essentially unbankable. Passing the SAFE Banking Act (re-introduced in March) would be a good start and would make it easier for banks and other depository institutions to deal with marijuana-related businesses. The stocks will get a lift when they’re able to list on the major exchanges and broader investor participation is enabled. AS you said, for patient investors able to live with the volatility, the sector offers attractive long-term gains.