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Are Marijuana Stocks A 'Buy' Amid U.S. Decriminalization Bill?

·3 min read

Marijuana stocks trading on U.S. exchanges have rallied sharply over the past week, following news that U.S. Senate Democrats are introducing a federal cannabis decriminalization bill before the August recess.

The bill – known as the Cannabis Administration & Opportunity Act (CAOA) – was initially drafted a bit over a year ago. Senate Majority Leader Chuck Schumer has repeatedly stated his intentions for pushing a version of the bill through the Senate, although it remains unclear that it’ll reach the required 60 votes needed to pass. It’s anticipated that most Republican senators will likely oppose the bill, while not all Democrats are in favor either.

If signed into law, it would remove marijuana from the Controlled Substances Act (CSA). But the bill would still allow states to set their own marijuana policies. It would also expunge past non-violent convictions related to cannabis.

Marijuana-Related Investments

One way to gain exposure to the industry while limiting overall risk is to invest in marijuana-related ETFs. The ETFMG Alternative Harvest ETF MJ tracks the Prime Alternative Harvest Index, which is designed to measure the performance of companies within the cannabis ecosystem that benefit from global medicinal and recreational cannabis legalization initiatives.

MJ was the first U.S. ETF to target the global cannabis industry. While MJ has suffered substantial losses this year along with the market, bullish investors are now targeting the space amid potential U.S. legalization. The ETF just witnessed its highest daily volume since March, when it rallied over 32% from the monthly bottom.

One specific holding within the ETFMG Alternative Harvest ETF is also seeing a spike in buying pressure. This company is the largest holding within MJ and accounts for over 8% of the total ETF constituency. The company is a component of the Zacks Medical – Drugs industry, which currently ranks in the top 39% out of approximately 250 industry groups. Note the favorable characteristics for this group below:

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Let’s take a deeper look at this marijuana-based company.

Cronos Group Inc. (CRON)

Based in Canada, Cronos Group manufactures, markets, and distributes hemp-derived supplements and cosmetic products through e-commerce, retail, and hospitality partner channels under the Lord Jones and Happy Dance brands in the United States. The company is also engaged in the cultivation and manufacturing of cannabis and related products for medical and adult-use markets. CRON also exports dried cannabis and oils to Germany, Israel, and Australia.

A Zacks Rank #3 (Hold), CRON most recently reported a Q1 loss back in May of -$0.08/share, in line with consensus estimates. Sales of $25.03 million exceeded estimates by 7.56%. While the stock has had a rough go this year along with the rest of the industry, shares have risen over 26% from the June bottom.

StockCharts
StockCharts


Image Source: StockCharts

Revenues are expected to climb 61.9% in 2022 to $120.5 million. Potential domestic legalization would render that estimate conservative. Make sure to keep an eye on CRON as well as the marijuana industry in the coming days and weeks.


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ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
 
Cronos Group Inc. (CRON) : Free Stock Analysis Report
 
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Zacks Investment Research