A Dramatic Demonstration Of Cannabis Illiquidity – The MJUS ETF Rebalancing

Cannabis Stocks have been trending downward for two weeks, but the MJUS ETF rebalancing efforts gave some of them an additional shove.

The Amplify U.S. Alternative Harvest ETF MJUS is an actively managed ETF that seeks long-term capital growth through investing in the securities of U.S. Cannabis Companies. The ETF is small relative to the better-known MSOS ETF MSOS at about 14% of the net assets, but despite its smaller size, the MJUS had a dramatic impact on Cannabis stocks over the last two weeks. 

The blue line shows the percentage of the total volume in the stock that was accounted for by MJUS trading. Negative numbers indicate selling, while positive numbers show purchases. The orange line shows each stock’s percentage gain or loss over the period.

The MJUS accounted for between 0.3% and 23% of the stock volume during the period.

Other technical and fundamental factors were at play during the period. For example, AYR AYRWF stock was bound to be impacted by the completion of its debt exchange and new capital raise, increasing the share count by around 35M, not counting in-the-money warrants.

The correlation of .67 between the MJUS trading activity and the stock price changes is statistically significant and somewhat scary.

The rebalancing proves a couple of points about cannabis investing. Rumors (like last week’s imminent DEA announcement rumor) and technical events like the ETF portfolio rebalancing can have outsized impacts on the immature and illiquid cannabis space. Nimble and well-funded investors may be able to trade these dislocations advantageously. However, most cannabis investors should avoid the temptation to look at the share prices every day, lest they be subject to motion sickness. 

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)

• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)

• Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)

• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)

• Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)

• Credit Ratings (Leverage and Liquidity Ratios)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.