How would a hypothetical marijuana ETF do this year?
As marijuana law changes have taken hold around the country, marijuana-related stocks have rallied in 2014.
The hottest sector so far in 2014, without a doubt, has been marijuana stocks -- as investors look for the next big opportunity to hit the jackpot.
The landscape is eerily similar to the days of the Gold Rush, with modern prospectors searching for their next piece of gold. Today's prospectors, however, are risk-tolerant investors, looking to cement their financial future with a couple of huge winners.
There are approximately 20 or so marijuana-related stocks that trade mainly on the over the counter exchanges in the U.S. They range from a company that actually had negative revenue last quarter to some names that are now pushing a $1 billion market cap.
Regardless of their financials and what they actually do, investors have been looking for the next big winner in the niche sector, and pushing all stocks higher.
Because investing in marijuana stocks is comparable to the Wild West, it would be more convenient for investors to be able to buy a basket of stocks instead of the risk of an individual stock. Unfortunately, there is not a marijuana ETF in existence -- but what if investors took the liberty to build their own ETF?
The list of potential marijuana stocks that could be included in the "Marijuana ETF" is upwards of 25 stocks. However, not all stocks will be chosen to make up the ETF.
To keep things simple, this hypothetical marijuana ETF has a total of 10 stocks related to the sector. The market caps range from $12 million to $763 million. And all ten were higher in 2014 versus a stock market that remains in the red for the year.
The assumption is that each stock is equally weighted in the ETF, thus making up 10 percent each. If this imaginary ETF actually existed to begin the year, it would have closed last week with a mind-blowing gain of 489 percent for the year.
Granted, hindsight is 20/20 -- and there is no marijuana ETF to speak of in reality.
However, given the buzz around the sector it is correct to assume the ETF would have garnered a lot of attention from investors. And the gains may have been even higher with more money flowing into the niche sector.
The million-dollar question now is whether or not the marijuana stocks have more room to continue.
Here is one reason why the fad will end badly. Vape Holdings (VAPE), a company involved in vaporizers, cannabis concentrates and e-cigarettes, reported negative revenue of $8,000 for the quarter ended June 2013. This did not deter investors from flocking to the stock, which is up 129 percent in 2014 and up over 1500 percent since November. With a market cap now north of $18 million, it should throw up red flags all over the place.
On the flipside, there will be marijuana-related companies that make it and have a legitimate business, but choosing the correct company will not be easy. This is where an ETF would be a perfect fit for the adrenaline junkies in the market.
Here is the list of the 10 stocks included in the hypothetical McCall Marijuana ETF:
- Advanced Cannabis (CANN)
- CannaVest (CANV)
- Creative Edge Nutrition (FITX)
- ENDEXX Corp (EDXC)
- Fusion Pharma (FSPM)
- GreenGrow Technologies (GRNH)
- GrowLife (PHOT)
- mCIG (MCIG)
- Medbox (MDBX)
- Terra Tech (TRTC)
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