Cannabis companies likely have an eventful four years ahead of them.
Pot stocks have been hot following Election Day, with big names in the space gaining on the prospects of a Joe Biden presidency. Exchange-traded funds tracking the space have also soared over that time frame, with one of the biggest winners being the Amplify Seymour Cannabis ETF (CNBS), up nearly 23%.
Tim Seymour, founder and chief investment officer of Seymour Asset Management and the portfolio manager of CNBS, said the election bolstered the space in more ways than one.
“The dynamics in the cannabis sector are really extraordinary,” he told CNBC’s “ETF Edge” last week. “We saw five new states vote through either adult or medical markets. The top-line growth story is 30-40%. … This is CPG, this is very sophisticated and the country’s in favor.”
For Seymour and CNBS, the key is “finding the right exposure,” he said. The ETF’s top five holdings are GrowGeneration at roughly 12%, Canopy Growth at 11%, GW Pharmaceuticals at 11%, Village Farms at 11% and Aphria at just under 10%.
Seymour’s fund does not own shares of popular Canadian cannabis stocks Tilray and Aurora Cannabis because the companies cannot directly own U.S. assets despite being listed on U.S. exchanges.
Therefore, they serve as plays on Canada’s pot industry, where new regulations are squeezing the now federally legal market and, in many cases, capping profits, Seymour told CNBC in a follow-up interview on Monday.
Instead, he prefers names such as Innovative Industrial Properties, Trulieve and Curaleaf, all of which are “good plays” on the fledgling U.S. market, he said.
As such, CNBS is “the only derivative-free cannabis ETF that’s up year to date,” with a more than 18% gain as of early Monday, Seymour said.
The ETFMG Alternative Harvest ETF (MJ), the largest pot ETF by assets under management, is down almost 22% for 2020.
“This is all about active management. This is all about being someone that’s investing in a sector and … talking to companies and watching the allocations because it’s moving very quickly,” Seymour said.
With states not only continuing to legalize cannabis use, but using revenues from it to “plug holes” in their budgets, pot plays could be close to reversing the “vicious bear market” they’ve been in for the last year, Seymour said.
“Part of the trade … was about being defensive. It was about finding the best balance sheets. It was about finding the companies that actually hadn’t levered their balance sheet or put a bunch of dilutive equity warrants in their structure. So, that’s really what we’re doing at CNBS,” Seymour said.
“People may or may not believe in what’s going on in the cannabis story, but … this is a national issue,” he said. “More importantly, it’s a very sophisticated consumer product story and active management and being thematic in this space is what we do and it’s working.”