I’m convinced that the AdvisorShares Pure US Cannabis ETF will see an industrywide catalyst over the next 12 months. This exchange-traded fund (ETF) is composed of US cannabis multistate operators (MSOs). MSOs are vertically integrated, meaning they grow and sell cannabis in their own retail stores.
There are two fundamental reasons to buy these MSOs:
1. These companies are rapidly growing both, revenue and operating cash flow. Annual growth rates for the top tier of these companies are in excess of 40%. This growth is expected to continue for years as more states legalize cannabis.
2. Despite the rate these companies are growing at and will continue to grow at, their stock market valuations remain shockingly cheap. Fast growth should command a premium valuation, and should not be trading at a discount.
But why are these fast-growing companies valued so cheaply? Because hardly anybody can own them, at least for now. Cannabis is still illegal at the federal level in the US, institutional investors (mutual funds, pension funds and others) are not allowed to own these MSOs. While alcohol and tobacco companies have 60-80% of their shares owned by mutual funds and large institutions, MSOs have 0% owned by institutions.
These companies can’t even list on a U.S. stock exchange because cannabis remains federally illegal in the U.S. All of these stocks are currently listed in Canada, and that deters even more investors.
But that’s all about to change, sooner or later. Therefore, start buying now before institutional money flood gates open. Cannabis now has bipartisan support in Washington. Big changes are coming and they might happen already in 2022. Once these stocks can list on major U.S. stock exchanges, institutional money will come pouring in.
While Canadian operators trade at more than 30 times EBITDA (earnings before interest, taxes, depreciation and amortization), their faster-growing, more profitable American counterparts trade at a fraction of that amount. Canadian Operators are valued 4-times higher.
Now is the time to get invested in this sector before the institutions can. And the best way to do that is through the AdvisorShares Pure US Cannabis ETF.
Sven Franssen