A Deep Dive into Cannabis Illiquidity and the Impact of MJUS ETF Rebalancing A Deep Dive into Cannabis Illiquidity and the Impact of MJUS ETF Rebalancing

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For the past two weeks, the trajectory of Cannabis Stocks has been a cause for concern. Nonetheless, the recent repositioning efforts by the Amplify U.S. Alternative Harvest ETF (MJUS) exerted an additional downward push on some of these stocks.

MJUS, which is an actively managed ETF geared towards long-term capital growth through investments in U.S. Cannabis Companies, may be considered smaller in size when compared to the more widely recognized MSOS ETF. With only about 14% of the net assets, MJUS, despite its size, had a profound impact on Cannabis stocks in recent weeks.

The analysis reveals that MJUS trading accounted for a significant portion of the stock volume during the period, ranging from 0.3% to a staggering 23%. This high level of influence is certainly not to be overlooked.

Beyond the MJUS rebalancing, other technical and fundamental factors came into play. For instance, AYR stock was set to be impacted by a debt exchange and a fresh inflow of capital, causing a substantial increase in the share count, excluding any in-the-money warrants.

The data revealed a correlation of .67 between MJUS trading activity and the stock price changes, which is statistically significant and rather unnerving.

What the rebalancing event clearly demonstrates is the outsized impact that rumors and technical events, such as ETF portfolio rebalancing, can have on the immature and illiquid cannabis space. There may be opportunities for agile and well-funded investors to capitalize on these market dislocations. However, for the majority of cannabis investors, it is advisable to resist the urge to monitor share prices daily, as doing so might lead to a case of financial motion sickness.

The Viridian Capital Chart of the Week serves to underscore key investment, valuation, and M&A trends sourced from the Viridian Cannabis Deal Tracker.

Originally established in 2015, the Viridian Cannabis Deal Tracker has diligently monitored and analyzed over 2,500 capital raises and 1,000 M&A transactions, amassing a total value exceeding $50 billion.

It’s important to note that the views expressed in the preceding article are those of an external contributor and do not necessarily reflect the opinions of Benzinga, as it has not been edited by our team.

  • 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)

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