The market for recreational marijuana sales has commenced on 1st January 2018 in the state of California in the United States.
This, is big business!
According to cannibis financial analysis firm GreenWave Advisors, the state’s existing black market for marijuana is pegged at $13.5bn, while the legal market could be worth an estimated $5.1bn in 2018. Another source, Marijuana Business Daily, estimates that sales could reach $8bn in 2019.
The market for recreational marijuana sales has commenced on 1 January 2018 in the state of California in the United States. This, is big business. According to cannibis financial analysis firm GreenWave Advisors, the state’s existing black market for marijuana is pegged at $13.5bn while the legal market could be worth an estimated $5.1bn in 2018. Another source, Marijuana Business Daily, estimates that sales could reach $8bn in 2019.
While five other states in the US already offer legal marijuana sales, the size of the state of California is set to reshape the entire industry.
Since 1969, support for the legalized use of marijuana has increased by five-fold:
Legal Status of Cannibis:
Getting Exposure To The Marijuana Industry via ETFs:
#1. Horizon Marijuana Life Sciences Index ETF
The ETF seeks to replicate, to the extent possible, the performance of the North American Marijuana Index (the “Index”), net of expenses. The Index is designed to provide exposure to the performance of a basket of North American publicly listed life sciences companies with significant business activities in the marijuana industry.
Top 20 Holdings and Composition by Country:
Technical View: At current levels the price is slightly higher where I would suggest an entry. Should we see a short term pullback, investors should look to add to a portfolio.
#2. AdvisorShares Vice ETF
The investment thesis of the AdvisorShares Vice ETF (Ticker: ACT) believes that investing in select alcohol and tobacco companies will provide continued growth and long-term performance across all types of market environments.
Coupled with the continuing societal acceptance and regulatory approvals of cannabis across jurisdictions, a new investment avenue has emerged that provides a compelling upside to complement the steady and more predictable returns of the coined recession-proof equities.
Technical View: Investors could look to add at current levels ($26.66), using a stop loss of $22.
#3. ETFMG Alternative Harvest ETF
MJX tracks the Prime Alternative Harvest Index, an index created to provide investors with a product that enables them to take advantage of both event-driven news and long term trends in the cannibis industry as well as the industries likely to be influenced by the medicinal and legalization initiatives taking place in many locations globally. The index is designed to measure the performance of companies that will benefit from these initiatives, collectively referred to as companies in the cannibis ecosystem.
Technical View: After consolidating in a sideways range since mid-2016, the price has made a bullish upside break. Buy at current levels or better ($35.57). Stop-loss: $30.
Growth in the world’s largest economy, the United States, has been steadying over the last number of years, picking up from the post-crises slump and leading in terms of the global recovery. This recovery has seen business in the US regain confidence leading to a steady decline in the unemployment rate while the number of jobs added on a monthly basis have steadily increased.
US Non-Farm Payrolls
US GDP Growth Rate
Over the last 2 months, the US 10 Year Bond Yield has formed a symmetrical triangle pattern which is subsequent to the appreciation in the yield from 2.01% to the last close of 2.45%.
During yesterday’s trading session, the yield reached it’s highest level since March 2017, testing a high of 2.47%, opening up the next resistance level of 2.6%.
In the ETF space we have numerous opportunities for higher US Interest Rates. For now, we briefly look at three of them:
#1. SPDR Financial Sector Select ETF (XLF) – Long/Buy ( )
We previously recommended this ETF at an entry of $25.50. At the current level of R27.96, I believe there is still some room to move higher.
A higher 10-year yield is indicative of a stronger US economy and also supportive of the financial services sector, specifically the big banks. Valuations remain reasonable however in the short term the question is whether interest rate expectations may be priced in to a certain extent. In addition, the proposed tax cuts would be a boost for US growth, fueling confidence even further.
#2. iShares MSCI Emerging Market ETF (EEM) – Short/Sell ( )
A rise in US yields makes emerging market debt less attractive. Technically, the price has broken below the channel that has been in place since January 2017, after forming an island reversal. The last eight trading sessions has see the price re-testing the underside of the channel as well as a 50-day moving average that appears to be waning. Why not have a look at an put option trade around this ETF to benefit from a further price decline?
#3. Direxion Daily Gold Miners Bears 3x (DUST) – Buy/Long ( )
For the less conservative trader, the ETF uses leverage and is designed to benefit (rise) from a decline in the shares of gold miners. A rising USD makes commodities more expensive and could bring the Gold under pressure. The ETF price has formed a base consolidation over the last 18 months and is currently looking break the downward trend line that has been in place since January 2017. Look for confirmation of upward momentum before iniating a position.
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