Will the AdvisorShares Pure US Cannabis ETF Spike in 2024?

The AdvisorShares Pure US Cannabis ETF climbed 3% last week and is up by a fifth this year, amid growing speculation that a potential reduction in marijuana’s classification is imminent. Top holdings Green Thumb and Curaleaf are also on the rise, following a difficult 2023 for the US cannabis market.

• MSOS fund climbs 20.4% so far in 2024.
• US health officials are pushing for reclassification of cannabis.
• Market predicted to grow at a CAGR of 14.2% to 2030.

The AdvisorShares Pure US Cannabis ETF [MSOS] rose 2.9% last week, and has climbed 24.9% in the past 12 months.

The fund may be reacting to a scientific literature review, in which US health officials recommend the Drug Enforcement Agency (DEA) reduce the classification of cannabis. The DEA last week confirmed it is reviewing marijuana’s classification under the Controlled Substances Act, giving a ray of hope to cannabis-related stocks and funds.

The top holding in MSOS, Green Thumb Industries [GTBIF], rose 2% across last week. The second-biggest holding, Curaleaf [CURLF], increased 6.3% in the same period.

Founded in 2020, MSOS is an actively managed fund offering pure-play exposure to US cannabis-related companies. AdvisorShares points out that, “even with limited legal availability”, the US is the world’s biggest market for cannabis, “creating some of the best and [most] innovative products” and “mastering large-scale cultivation”.

However, last year was a difficult period for cannabis stocks, as hoped-for legislative approvals continued to stall and the market flagged. Over the course of 2023, MSOS remained flat.

Curaleaf and Green Thumb Shares Soar in 2024

Green Thumb Industries is the biggest holding in the MSOS fund as of 19 January, with a 26.4% share in its portfolio.

The Chicago-based company makes and sells recreational and medicinal cannabis in 15 US states and operates 90 dispensaries under the name RISE.

Green Thumb last posted earnings in November for Q3 2023, when it announced revenue of $275.4m, up 5.4% year-over-year, and GAAP earnings of $0.05 per diluted share, up 25%. In a press release, the company said profits were driven in part by adult-use cannabis sales, which commenced on 1 July, 2023, at four of its Maryland dispensaries.

Green Thumb shares are up 60% in the past 12 months.

The second-largest holding in AdvisorShares Pure US Cannabis ETF is the world’s largest cannabis company Curaleaf, with a 20.9% weighting. Curaleaf also released Q3 earnings in November, when it posted revenue of $333.2m, up 2% year-over-year, but net losses per share of $0.09, down from losses of $0.04 one year prior. Revenue missed estimates of $340.2m forecast by Morning Star analysts.

In January, the company announced the launch of Stir, a new drink containing THC, the psychoactive constituent in cannabis. In December, it began to sell wholesale adult-use cannabis products in the state of New York, where recreational cannabis has been legal since March 2021.

The Curaleaf share price has climbed 20.4% over the past 12 months.

Is There a Shift Ahead?

Federal reforms on classification could drive cannabis-related shares and funds including MSOS, with a rebound possible in 2024. However, cannabis stocks including Curaleaf have plunged from the highs seen a few years ago. Some experts remain cautious regarding the sector, citing bureaucratic red tape, market struggles and ongoing uncertainty as optimism around widespread US legality has faded.

But there may be grounds for positivity. While there have been petitions to reschedule cannabis in the past, the recent scientific review gives the effort renewed credibility.

Elsewhere, speculation continues that the SAFER Banking Act, which would allow cannabis-related businesses access to a range of financial services, could prompt a spike in marijuana stocks.

According to Grand View Research, the cannabis market was worth $13.2bn in 2022, and could grow at a CAGR of 14.2% from 2023 to 2030.

At CNN, the consensus among 19 analysts is to ‘buy’ Green Thumb shares. Curaleaf is similarly garnering optimism, with the consensus among 17 analysts being to ‘buy’ its stock.