January 3, 2018 / 5:51 PM / 9 months ago

Canadian pot stocks surge on new U.S. fund, California legalization

TORONTO, Jan 3 (Reuters) - Canadian cannabis stocks rose on Wednesday, setting new records as investors enthused over early growth of the first U.S.-listed exchange-traded fund focused on the pot industry and the Jan. 1 legalization of recreational marijuana in California.

Canadian cannabis producers Canopy Growth Corp and Aphria Inc were among the biggest gainers on the Toronto Stock Exchange’s S&P/TSX composite index, surging as much as 11.9 percent and 17.5 percent respectively, although they pared some of those gains during the day. Aurora Cannabis, Canada’s second-biggest listed producer, soared 25 percent. All hit record highs.

MJIC Inc's equal-weighted Canadian Marijuana Index, which tracks stocks of major cannabis companies, rose 14 percent, also a record high. [here ].

The U.S.-listed ETFMG Alternative Harvest ETF, which began trading on Dec. 26, has risen to $164 million in net assets from $6 million in one week, according to Vahan Ajamian, an analyst at Beacon Securities in Toronto. Top holdings include Canadian weed producers Cronos Group Inc and Canopy.

“If Americans want to buy Canadian stocks in an easy way, this is the first ETF that provides that ability in the U.S.,” Chris Damas, editor of the BCMI Cannabis Report, said in an interview.

Still, he said that he considered the sector to be in a bubble. With investors from the U.S. and other countries seeking exposure to Canadian cannabis stocks, demand is far outpacing supply, he said.

California’s legalization of recreational marijuana has also given legs to the Canadian rally. The state, with a population similar to the size of Canada’s, is seen as a harbinger of the demand that can be expected when Canada legalizes adult use in mid-2018.

Reports of long lines and shortages in California were contributing to the positive sentiment, even though the only Canadian company with “meaningful direct exposure” in the state was CannaRoyalty Corp, Ajamian said by email.

The Horizons Marijuana Life Sciences ETF, which is listed in Toronto, rose as much 11.9 percent, before pulling back to trade 7.4 percent higher on Wednesday. It is up 20 percent since Friday’s close. (Reporting By Nichola Saminather, Editing by Rosalba O’Brien)

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