Is a legal high ahead for Amplify Growth Opportunities ETF?

The ETF managed by Tim Seymour is up 5% in the last month, but down 22.4% year-to-date as regulatory headwinds continue to blow. However, a positive performance by top holding Curaleaf, and suggestions the SAFE Banking Act may yet be passed, mean there is hope for investors, as legalisation sweeps the US.

• Top holding Curaleaf stock up 23% in past month as it buys a Portuguese cannabis processing plant.
• CNBS is down more than one-fifth across 2023, amid regulatory uncertainty.
• The SAFE Banking Act was reintroduced as a topic for Congress in April.

The Amplify Growth Opportunities ETF [CNBS], also known as the Amplify Seymour Cannabis ETF, jumped 7.1% in the week following 5 July, on news a subsidiary of its top holding Curaleaf [CURLF] is buying a major cannabis operation in Portugal.

The ETF, which is actively managed by Tim Seymour, focuses predominantly on pure play companies that gain half or more of their revenues from processing, growing, distributing or selling cannabis and hemp products.

While the CNBS fund is up 4.9% in the past month, it has been on a downward trajectory in 2023, sliding 22.4% year-to-date, and has failed to recover its peak of February 2021.

The recreational use of marijuana is now legal in 23 US states, and partially legal in many others. Despite this, pot stocks have struggled this year. At the end of 2022, government funding was denied to the SAFE Banking Act, which would have allowed banks to legally work with cannabis companies. At present, financial institutions are prohibited from doing so, as marijuana is still illegal at the federal level.

Key holding Curaleaf expands reach in Europe

As of 17 July, Curaleaf is the largest holding in the fund, with a 12.35% weighting. The US company is a major producer of high-grade cannabis products and is active in 19 US states, with 152 dispensaries. It is currently the world’s biggest cannabis company.

Its new Portuguese acquisition, made via Curaleaf subsidiary Terra Verde, enables it to accelerate its reach beyond the US.

Announcing the news, Curaleaf CEO Matt Darin said: “By streamlining our production processes and expanding our cultivation capabilities, Curaleaf International is setting the stage for responsible, robust growth over the next few years as cannabis adoption accelerates across Europe.”

However, hopes of legalisation in potential key markets like Germany are yet to reach fruition.

CURLF’s stock is up 22.8% in the past month, but down 13.4% year-to-date.

The second-largest holding in CNBS is Illinois-based Green Thumb [GTBIF] with 11.05% of fund assets. Green Thumb missed expectations in its first quarter earnings, reported in May. Its share price is up 1.1% in the past month but down 11.3% year-to-date.

The third-biggest holding is Canada's largest cannabis firm, Tilray [TLRY] with 7.11% of fund assets. In April, Tim Seymour indicated on an episode of Opto Sessions that he was still bullish on Tilray, following its acquisition of fellow Canadian firm Hexo. Tilray shares are up 7.1% in the past month, but down 38.3% across 2023.

SAFE Banking Act crucial to cannabis theme’s future

Often-volatile cannabis stocks have had a rough ride amid regulatory uncertainty and rising inflation. According to Barron’s, they tumbled 70% in 2022, compared to the wider market’s 20% fall. In January, analysts at Cantor Fitzgerald advised investors to “buy the dip” but, six months on, cannabis stocks still have not reaped the rewards of a more relaxed stance on cannabis consumption.

The question for funds like CNBS remains whether the SAFE Banking Act will be passed into law. US senator Sherrod Brown said at a May hearing that, without full access to the banking system, “legal cannabis businesses are forced to operate in the shadows”.

Congress reintroduced the bill in April, indicating that there is hope for investors in the theme. Curaleaf founder and executive chairman Boris Jordan said he believed this was a “symbolic and important gesture” suggesting a willingness to get “federal reform across the finish line”.

According to a report by Fortune Business Insights, the global market for cannabis could rise from $57.2bn this year to $444.3bn by 2030, expanding at a CAGR of 34.03%.

At CNN, 16 analysts are offering a price target for Curaleaf stock, with a median 12-month target of $5.63 implying upside of 51.3% implied on its 14 July close.

Meanwhile, 17 analysts are offering a price target for Green Thumb stock, with the median price of $16.93 a potential 121% leap upwards from its last close.