Marijuana ETFs fell into Y 2020, adding to ‘tears’ for investors who got hammered last year trying to chase a 1-time market darling.
The ETFMG Alternative Harvest ETF, ticker MJ, sank 1.3% on the 1st day of the year, while broad market indexes rallied to new records. The fall continued a 9-month slide for the ETF that only a year ago was attracting money by the shovel full on speculation the industry would continue its ‘high’ rise.
MJ ended last year down 30% for 1 of the worst returns among all ETFs as the companies it tracks delivered dire sales and profit warnings.
The ongoing struggles for cannabis ETFs are a sharp blow to retail investors who tried to get in on the frenzied marijuana boom that began 2 years ago after Canada and California deregulated production. Instead of a ride straight up, they got the bust part of the cycle that often characterizes newborn industries.
“If you look at the sector as a whole, it’s being created before our eyes so there’s going to be natural volatility,” said the vice president of Brown Brothers Harriman’s global ETF services. “We’re seeing firms come in and out of the market and working in a cobbled together regulatory environment. That’s all combining to create some headwinds in that space.”
It was not just MJ that floundered. At least 5 new marijuana funds came to the US market in Y 2019, bringing the total to 7.
Newcomers Cambria Cannabis ETF and the Global X Cannabis ETF lost more than 30% each, according to data. The biggest fund tracking the S&P 500 Index, on the other hand, rose 29% for its best year since Y 2013.
The ETF debuts capped a 2-year frenzy among fund providers to create products that offered access to the fledgling cannabis industry. US-listed marijuana ETFs attracted $786-M in Y 2018 and another $720-M in Y 2019. MJ characterized the gold rush mentality, converting its focus at the end of Y 2017 from tracking Latin American real estate to tracking an index of cannabis companies.
But exuberance that the marijuana industry will become a multibillion-dollar giant faded as some companies posted disappointing earnings reports amid stalling legalization efforts and struggles to develop the right mix of products.
“It had to be tough to stomach, especially with all the excitement around it and the fanfare — I’m sure anybody who bought into it, it was potentially a wake-up call for them as to what it would take to see this through,” said an analyst with Bloomberg Intelligence.
Although political and regulatory risks could put a damper on proliferation, many analysts are forecasting an uptick in sales in Y 2020.
In Canada, sales could surge by 35% this year, while additional US states may adopt pro-marijuana policies thanks to high levels of support, according to some speculation.
That has left many investors hopeful about a resurgence, with the MJ fund, for instance, seeing inflows despite its double-digit loss. The fund took in about $590-M last year, its 3rd straight year of inflows.
“The fact that it can retain the assets it has despite a year like this is utterly rare and unusual,” said the . It’s “a good sign for the pot ETF category going forward,” the vice president of Brown Brothers Harriman’s global ETF services.
HeffX-LTN overall technical outlook for MJ is Bearish.
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