Cannabis ETF MSOS Soaring in 2024 YTD

Cannabis ETF MSOS Soaring in 2024 YTD

The TDR Three Key Takeaways:

1. Cannabis ETF Outperforming: Two AdvisorShares Cannabis ETF, notably MSOX and MSOS, are leading the pack in 2024, showcasing significant year-to-date performance amidst a vast global ETF market.
2. Regulatory Shifts Fuel Growth: Investor optimism is high due to the anticipated rescheduling of cannabis in 2024, which could alleviate tax burdens under IRS code 280E and potentially increase the valuation of cannabis firms, complemented by robust market growth forecasts.
3. Emerging Investment Opportunities: The cannabis market offers attractive investment options, with ETFs like MSOS and MSOX providing leveraged exposure for higher potential returns and the possibility for investors to use TDR research to help them directly invest in individual cannabis companies.

Among the 8000+ ETFs worldwide, the cannabis sector is making its mark in 2024, with two AdvisorShares Cannabis ETFs ranking impressively in the top thirteen for year-to-date performance. The AdvisorShares MSOS 2X Daily ETF (MSOX) claims the third spot with a YTD performance of 32.06%, while the AdvisorShares Pure US Cannabis ETF (MSOS) is at thirteenth place with a performance YTD of 16.98%.

Source: www.etfdb.com as of closing January 16th 2024

Several factors contribute to this strong start in 2024:

1. Rebound from 2023’s Decline: The prior year saw a downturn in most cannabis stocks, exacerbated by year-end tax loss selling. Tax loss selling involves investors selling shares to realize a loss, which can offset taxable income. However, the alleviation of this selling pressure at the year’s start often fuels a rebound as investors seek to re-enter these positions.
2. Anticipation of Cannabis Rescheduling: Investors are buoyed by the prospect of cannabis being rescheduled in 2024. A shift from Schedule I to Schedule II would be transformative, allowing cannabis companies to deduct standard business expenses currently non-deductible due to IRS code 280E. This code prohibits businesses dealing with controlled substances from tax deductions or credits, significantly impacting their financials. TDR’s analysis indicates that this regulatory change could notably enhance the valuation of firms like TerrAscend and MariMed.
3. Appealing Valuations and Maturing Business Models: The current valuation of cannabis stocks is attracting attention, offering more favorable investment opportunities compared to previous years. This shift coincides with a maturation phase in the business models of cannabis companies, reducing the initial risks associated with establishing a new business.
4. Robust Market Growth: The cannabis market is experiencing rapid expansion. Statista forecasts that global cannabis revenue will reach $60.79 billion in 2024, with a projected CAGR of 14.06% from 2024 to 2028, culminating in a market volume of $102.90 billion by 2028.

The excitement surrounding the cannabis market is well deserved. At TDR we are dedicated to delivering institutional-quality research on this growing market, offering insights into investment opportunities in ETFs like the AdvisorShares Pure US Cannabis ETF (MSOS) and the AdvisorsShares MSOS 2X Daily ETF (MSOX), which is a leveraged ETF offering twice the daily performance of its underlying index compared to regular ETFs.

Disclosure – Some employees of The Dales Report do currently hold shares in AdvisorShares Pure US Cannabis ETF (MSOS) with no intent to sell.