You can count the number of marijuana-focused exchange-traded funds (ETFs) on your fingers. And you can count the number of relatively large marijuana ETFs on your thumbs. Only two have net assets of at least $500 million -- ETFMG Alternative Harvest ETF (MJ -5.11%) and Horizons Marijuana Life Sciences ETF.
ETFMG Alternative Harvest ETF is the bigger of these two top marijuana ETFs. While this ETF itself has lost money for investors so far in 2019, three of the individual stocks that it holds have more than doubled year to date. Here are the three best pot stocks so far this year in the biggest marijuana ETF on the market.
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1. Village Farms International
Village Farms International (VFF -3.44%) ranks as the top performer among the stocks held by the ETFMG Alternative Harvest ETF with a year-to-date gain of more than 170%. The company made 77% of its total revenue from sales of greenhouse bell peppers, cucumbers, and tomatoes in the second quarter. But it was another kind of greenhouse crop that powered Village Farms' tremendous gains this year.
Pure Sunfarms, the 50-50 cannabis joint venture formed by Village Farms and Emerald Health Therapeutics, has been on a roll. It was selected as a supplier for Canada's most heavily populated province's only online cannabis retail outlet, the Ontario Cannabis Store, in February. In April, Pure Sunfarms' Delta 3 greenhouse in British Columbia became fully operational with an annualized production run rate of 75,000 kilograms of cannabis. More importantly, the joint venture's sales skyrocketed in the first two quarters of 2019.
Village Farms' success wasn't solely limited to its joint venture with Emerald, though. The company listed its shares on the Nasdaq stock exchange in February. The company also took steps to expand into the booming U.S. hemp market earlier this year.
2. Zynerba Pharmaceuticals
ETFMG Alternative Harvest ETF's second-biggest winner so far in 2019 is a cannabis-focused biotech, Zynerba Pharmaceuticals (ZYNE). The biotech's shares are up more than 150% year to date.
Zynerba's impressive performance was fueled in large part by several key wins with regulatory agencies. In May, the U.S. Food and Drug Administration (FDA) awarded Fast Track Designation to Zynerba's cannabidiol (CBD) gel Zygel in treating Fragile X syndrome (FXS). A little over a month later, the U.S. Patent and Trademark Office granted a patent to Zynerba for using synthetic CBD in treating autism spectrum disorders.
It also helped that Roth Capital analyst Jerry Isaacson expressed a favorable opinion of Zynerba stock with a buy rating and a very optimistic one-year price target earlier this year. However, Zynerba gave up a big chunk of its gains last month after the company announced phase 2 results for Zygel in treating children and adolescents with developmental and epileptic encephalopathy (DEE) that caused some investors to be concerned about potential safety issues.
3. MediPharm Labs
MediPharm Labs (MEDIF 7.33%) takes the No. 3 spot among ETFMG Alternative Harvest ETF's holdings with a year-to-date gain of over 110%. The company is a leader in extracting cannabinoids from cannabis.
2019 started off with a bang for MediPharm Labs, with the announcement of a major extraction deal with TerrAscend. The company already had landed a really big partner with Canopy Growth. MediPharm went on to sign extraction deals with an unnamed "top licensed producer" in Canada and with Cronos Group.
All of this activity helped improve MediPharm's financial performance considerably. The company reported revenue of 31.5 million in Canadian dollars in the second quarter, up 43% from the previous quarter. MediPharm also posted a profit in Q2 of CA$4.1 million.
The best of these high-flying stocks
Although MediPharm Labs hasn't delivered the gains so far in 2019 that Village Farms and Zynerba have, I think that it's the best pick of these three high-flying stocks for long-term investors. The "Cannabis 2.0" cannabis derivatives market in Canada should create significant growth opportunities for MediPharm.
I also expect MediPharm will continue to ramp up its international sales. The company already exports cannabis extracts to Europe. MediPharm should soon have its Australian facility fully operational, which will serve as a hub for exporting to Asian markets.
There certainly are risks with investing in marijuana stocks. MediPharm Labs is no exception. For example, if the Cannabis 2.0 market isn't as large as expected, MediPharm's shares will likely suffer. However, for investors looking for attractive risk-reward propositions in the cannabis industry, I think that MediPharm Labs is worth consideration.
