If you only buy one cannabis stock, this ETF is the one

The legalization of cannabis is back in the news. On April 1, 2024, Germany becomes the latest nation to legalize or, to be more precise, decriminalize cannabis for recreational and medical use. Canada was one of the first nations to widely decriminalize cannabis and is one of the largest markets for legal marijuana. The U.S. Department of Health and Human Services (HHS) has recommended that the Drug Enforcement Agency (DEA) be reclassified from its current status as a Schedule I drug. Cannabis stocks fall into the consumer discretionary sector.

The DEA claims it holds all the cards.

All cannabis producers and publicly traded product companies are waiting with bated breath for the United States to legalize cannabis at the federal level. The DEA emphatically states that they have the final authority on the matter to schedule, reschedule, or even deschedule the drug.

Reclassification to Non-Legalisation

Although HHS, along with 31 lawmakers, recommended that the DEA reclassify cannabis from a Schedule I drug to a Schedule III drug, that does not make it completely legal.

To summarize, Schedule I drugs are classified as those with a high potential for abuse without currently accepted medical use, which include heroin, LSD, MDMA, and cannabis. Maximum sentences for distribution range from 20 years to life in prison.

Schedule II drugs are those with high potential for the above with some currently accepted medical uses, including oxycodone, Vicodin, fentanyl, cocaine, Adderall, and methamphetamine. Maximum penalties range from 5 to 40 years in prison.

Schedule III drugs are those with moderate to low abuse potential and some currently accepted medical uses. These drugs include codeine, ketamine, testosterone, and anabolic steroids. Maximum sentences can range from 10 to 20 years in prison.

While these are federal classifications, states may have more lenient or more severe penalties. Based on the federal classification, Schedule III drugs can still result in prison sentences based on trafficking intent and quantity of possession, which highlights the fact that reclassification is definitely not legalization.

The current and changing state of legalization

As of April 7, 2024, approximately 24 states and the District of Columbia have legalized the recreational use of cannabis. The latest states to legalize recreational marijuana are Virginia, Ohio and Minnesota. Commercial sales for Washington and Virginia have not yet started. Globally, recreational use of cannabis has been decriminalized in Thailand, Mexico, South Africa, Malta, Luxembourg and some parts of Australia.

The only ETF to support the cannabis movement

Cannabis investors have not had the most success, as most of these stocks have collapsed by 2023. While you could invest in some cannabis names, which could have been very unfortunate in 2021, you can spread your risk across 30 names across the Amplify the Alternative Harvest ETF NYSEARCA: MJ.

The 4 main holdings

The MJ ETF has 30 holdings in the cannabis sector, ranging from producers and product creators to REITs involved in the sector. Aside from a 41.58% weighting of its MJUS ETF, its largest company holding is Tilray Brands Inc. NASDAQ: TLRYwith 10.64 million shares representing a weighting of 9.43%. Canopy Growth Co. NASDAQ: CGC it is its second largest holding with 2.5 million shares, representing a weighting of 8.75%. With 150 stores in Canada, SNDL Inc. NASDAQ:SNDL it is the third largest, with 9.1 million shares or a weighting of 6.85%. Rounding out the top 4 companies is Cronos Group Inc. NASDAQ: CRON with 6.6 million shares equal to 6.04%. Having 30 different holdings avoids having to focus too much on a single name and not having to select which shares to hold.

Daily mug template

The daily candlestick chart on MJ illustrates a cup pattern. The cup lip line formed at $4.52 on September 15, 2023, while the stock fell to a low of $2.56 on October 30, 2023. MJ staged a rally on the daily low (MSL) market structure which has triggered the breakout through $2.79 as it rose to a peak of $3.92 on February 5, 2024, before falling to $3.04. MJ organized a strong demonstration ahead of the legalization of cannabis in Germany on April 1, 2024, to retest the cup lip line. The daily relative strength index (RSI) is moving just below the 60 band. The pullback support levels are at $3.92, $2.41, $3.04, and $2.56.

Before you consider the Amplify Alternative Harvest ETF, you’ll want to hear it out.

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While the Amplify Alternative Harvest ETF currently has a “hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here