It appears another mania in the cannabis sector is taking hold, this time pertaining to the House and Senate wins for Democrats in the U.S. Hopes of cannabis legalization in the U.S., the largest market for marijuana sales in the world, has driven stock prices to levels we haven’t seen in quite some time.
Accordingly, one of the most prominent exchange traded funds (ETFs) tracking this sector, the Horizons Medical Marijuana Life Sciences ETF (TSX:HMMJ) has seen its value balloon of late. This ETF has almost tripled from March lows, and has traded around its 52-week high in recent trading days.
The euphoria we’re seeing once again in the cannabis sector is driving some pretty impressive price gains, and many investors may want to jump on this bandwagon to catch this upside.
I think the tailwinds are deserving for the sector, however, I think the benefits from legalization will not be uniform. I think some cannabis companies, particularly those listed in Canada, will outperform others based on their current U.S. footprint and market expertise in the U.S. market. Canadian cannabis players have largely stayed out of the U.S. market due to regulatory concerns.
If Federal legalization happens, these concerns would be eliminated. That said, the cost of entry into the U.S. market may be higher than many think right now.
Accordingly, this is an ETF I don’t think is trading at levels that make sense right now. I think investors willing to put a little “funny money” into this sector should hand-pick and target their stocks. Buying the sector could turn out to be a poor investment decision long-term, particularly at these levels, in my view.
Invest wisely. my friends.
