No pun intended, but some green shoots are emerging in the cannabis industry and they could benefit ETFs, such as the Global X Cannabis ETF (NASDAQ: POTX).
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.
“Pot producers have done better than many businesses during the Covid-19 crisis, with American operators growing sales by some 30% sequentially in the March quarter,” reports Bill Alpert for Barron’s. “Even so, you can count the industry as among the economy’s recovery plays when humans come out from hiding.”
Potent Outlook
The global cannabis market is expected to grow to $630 billion by 2040, compared to $12 billion today. The cannabis industry is expected to expand into a $22 billion hemp-derived CBD product market in 2022, up from $591 million in 2018. Looking ahead, Canada’s cannabis industry is projected to grow six-fold in market value by 2026, up from $1.6 billion in 2018.
Younger demographics are often viewed as the primary consumers of marijuana and important drivers for the long-term cannabis investment thesis. With 2020 being an election year, there could be some political factors at play that could lead to the upside for POTX later this year.
“Polling suggests that voters in New Jersey and Arizona will approve referendums allowing adult recreational sales in their states. Arizona Gov. Doug Ducey thinks approval is so likely that he has asked that regulations be prepared for a 2021 rollout,” according to Barron’s.
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 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.
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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.