The Global X Cannabis ETF (NASDAQ: POTX) and other cannabis ETFs are struggling this year, but there are some positive signs in the group that may be going overlooked as market participants focus on bad news from some of the industry’s most downtrodden names.
POTX, the first cannabis fund from Global X follows a benchmark that holds “companies involved in the legal production, growth, and distribution of cannabis and industrial hemp, as well as those involved in providing financial services to the cannabis industry, pharmaceutical applications of cannabis, cannabidiol (i.e., CBD), or other related uses including but not limited to extracts, derivatives or synthetic versions,” according to Global X.
A slew of new markets, including health and wellness, oil extracts, tinctures, topicals, and capsules, are opening up for cannabis producers. Plus, some POTX components are poised to benefit from increased marijuana consumption – medicinal and recreational – thanks to coronavirus shelter in place directives.
“The measures put in place to limit the spread of COVID-19 are altering the cannabis market’s dynamics, too,” said Global X in a recent note. “Medical users are stockpiling cannabis to limit time out of the house and perhaps even increasing consumption as they seek to treat symptoms that may arise from isolation like anxiety.”
Recreational, Too
Perhaps predictably, the coronavirus is having a positive impact on recreational weed consumption.
“And for recreational users, this means more time to use cannabis products. Consumption patterns are indicative of these trends: On March 16, California saw a 159% increase in cannabis sales compared to the same day last year. Sales increased by 100% in Washington and 46% in Colorado,” according to Global X.
The legalized cannabis industry is also a nascent business with huge opportunities. New Frontier Data estimated that the consumer market value was nearly $344 billion in 2018, with Asia making up over half of that. There were also 263 million cannabis users globally over the past year. Interestingly, cannabis shorts have given back some 2019 gains this year.
“Many states updated their essential business designations to include those in the cannabis industry, which should result in more stable sales moving forward,” notes Global X. “Using alcohol sales during the Great Recession as a proxy, cannabis could prove to be a defensive investment area as consumers continue to purchase cannabis products.”
For more on thematic ETFs, please visit our Thematic Investing Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.