The cannabis sector started the year strongly, but we pointed to two troubling issues that were concerning us: low trading volume and liquidations of a popular ETF after the first full week. The New Cannabis Ventures Global Cannabis Stock Index rallied more than 10% in January, but it ended the quarter down 12.5% after declining in both February and in March.
Trading volumes remain very low, reflecting a lack of buy interest in our view. In early January, we pointed out that only 7 names traded more than $5 million in trading value the first Friday of 2023, significantly lower than in 2021 and 2022. The last Friday of Q1 saw just five names hit this threshold. Our quarterly rebalancing of the index resulted in three of the largest MSOs being removed due to their failure to meet the minimum trading value. Now only the very largest 5 will be in there.
Speaking of MSOs, the ETF that concerned us because of the redemptions it was facing is focused on MSOs, AdvisorShares Pure US Cannabis ETF. We pointed out in early January that the number of shares had declined 8.9% from mid-December. It has now declined 13.2% to 59.665 million shares, down 5.2% year-to-date. The ETF has performed very poorly, closing at an all-time low and dropping 18.6% in Q1:
Despite the bargain price, trading volumes remain very low. The ETF remains highly exposed to the 5 largest MSOs, holding 78.8% of the fund in them. Further redemptions will lead to selling pressure on the largest holdings, particularly the top two, Green Thumb Industries and Curaleaf, which comprise over 44% of the ETF.
We remain optimistic about cannabis stocks longer-term, as we think the industry should advance and see the stocks as very attractively valued. The weak start to 2023, though, is troubling, especially in light of stocks in general rallying during Q1. (Full Story)