With more states considering legalizing cannabis, combined with the future uptick in sales from states such as New York and New Jersey that have recently legalized recreational cannabis, I expect that cannabis sales will continue to experience strong growth – I would be very surprised if U.S. cannabis sales do not breach the $20 billion mark in 2021.
Looking beyond 2021, sales growth should remain strong for the foreseeable future as more states legalize, and as more “canna-curious” consumers enter the market in states that are currently legal. In the longer term, as the cannabis industry continues to mature, I would expect to see the strongest sales growth in derivative products, such as cannabis-infused beverages.
The landscape is similar outside of the U.S. – more countries are expected to legalize in 2021, such as Mexico, and more consumers are transitioning to cannabis-related products in existing markets. Accordingly, I expect to see continued strong sales growth, in both the medical and recreational markets, outside of the U.S.
While the majority of MJ’s holdings relate to global cannabis producers, many of those producers (such as Aphria and Canopy Growth) have U.S. operations and distribution that will allow them to expand into the U.S. upon federal legalization. In some cases, certain of MJ’s portfolio companies will be able to immediately convert their existing contingent interests in U.S. operators into actual ownership upon federal legalization.
Additionally, MJ’s portfolio includes a number of companies that provide ancillary products and services, such as FDA-approved pharmaceuticals, growing equipment, and accessory products. Notwithstanding the fractured regulatory landscape in the U.S., these companies, such as GW Pharma and The Scott’s Miracle-Gro Company, that focus on ancillary segments have experienced strong success and sales growth with respect to their cannabis-related businesses.
MJ’s diversified portfolio is somewhat unique in this respect – not only is MJ positioned to benefit from companies that sell traditional cannabis and cannabis-related products, MJ is also structured to benefit from the growth of the ancillary segments and related products and services. Not only does this allow MJ to capture a broader segment of the emerging cannabis industry, it should also help mitigate some of the volatility that is inherent with any emerging market.
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Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. The possession and use of marijuana, even for medical purposes, is illegal under federal and certain states’ laws, which may negatively impact the value of the Fund’s investments. Use of marijuana is regulated by both the federal government and state governments, and state and federal laws regarding marijuana often conflict. Even in those states in which the use of marijuana has been legalized, its possession and use remains a violation of federal law. Federal law criminalizing the use of marijuana pre-empts state laws that legalizes its use for medicinal and recreational purposes. Cannabis companies and pharmaceutical companies may never be able to legally produce and sell products in the United States or other national or local jurisdictions.
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