Cannabis ETF: Is it Time to Take Profits?

Cannabis stocks continued to build on momentum as trading opened on Monday, January 8. The Horizons Marijuana Life Sciences ETF (TSX:HMMJ) was up 6.15% at the bottom of the noon hour. Two of its top three holdings, Aphria Inc. and Canopy Growth Corp., were up over 10% in early afternoon trading.

The North American cannabis industry was dealt some troubling news after California legalized recreational use. U.S. Attorney General Jeff Sessions rescinded several Obama-era memos that adopted a policy of non-inference regarding states decision on cannabis use. Cannabis use is still illegal under U.S. federal law, and the move grants additional power to federal prosecutors to determine how to prioritize enforcement moving forward.

The move could complicate matters for Canadian companies with activity in the U.S., like Aphria. Canadian entities found to be in non-compliance with U.S. federal law are at risk as TMX Group undergoes its review of TSX listed cannabis companies. There is some anxiety that Aphria and others with a U.S. footprint could be at risk of delisting, or forced to divest from U.S. activity.

The momentum generated for stocks from impending legalization of recreational cannabis use in Canada, slated for July 2018, shows no signs of slowing down. The Horizons Marijuana Life Sciences ETF is already up 25% to start this calendar year. Cannabis companies will soon have a lot to prove in the summer of 2018. Investors should be taking profits ahead of what will likely be a chaotic rollout.