The top-performing ETF in the world this year is a cannabis fund up 140%. One of its analysts told us the 3 holdings that have the infrastructure to hit the ground running and be market leaders when federal legalization happens.

  • Cannabis stocks and ETFs are soaring amid regulatory tailwinds and Reddit-driven momentum.
  • The top-performing ETF in 2021 so far is the Global X Cannabis ETF (POTX).
  • Global X analyst Andrew Little shared with Insider his three top picks in the industry.
  • Visit the Business section of Insider for more stories.

The numbers speak for themselves: If you own a cannabis exchange-traded fund in 2021, your returns are looking quite handsome.

Ten of the top 11 ETFs in the world this year by performance are focused on the cannabis industry, as more states legalize the drug for recreational use. 

This week alone, cannabis stocks and ETFs have seen massive jumps on positive earnings, new distribution deals, and the increasingly rosy outlook for the regulatory landscape. Momentum-driven Reddit traders helped too.

“Right now we’re really seeing many years of speculation and hope for positive news in regard to the cannabis industry in the US and around the world really coming to a head,” Andrew Little, an analyst for Global X’s cannabis ETF (POTX), told Insider on Tuesday. 

Up 140% since the beginning of the year, POTX is the top performing ETF in the world in 2021. 

Little said he expects the tailwinds behind the cannabis industry to continue, as President Biden takes a softer approach toward it compared to previous administrations, and as Democrats, who control both chambers of Congress, take a favorable stance toward legalizing the drug.

So far, the federal ban on marijuana has meant hurdles for the industry in terms of their ability to conduct pharmaceutical research, access the federal banking system, and grow, Little said.

That would all change if it’s legalized, which is looking more likely.

“Last Monday with Senators Booker, Wyden, and Schumer releasing their statement looking to end the federal prohibition of marijuana in order to right the wrongs of the war on drugs and that they were willing to work together to get cannabis reform, I think that that really was — after all the positives after the election up until last Monday — that really was the icing on the cake exciting investors,” Little said.

But because of the strong performance of cannabis stocks in recent days and weeks, Little warned that a pullback in the sector in the short-term is possible. He also said that the hype around cannabis could create a dot-com-style bubble that could end up leaving some companies and investors behind.

So we asked Little for his highest-conviction picks in the industry. He shared the three names that are “poised to be market leaders” in the years ahead, and that have the infrastructure to hit the ground running if and when marijuana is legalized federally.

3 cannabis stocks ‘poised to be market leaders’

Little said he likes firms based in Canada, where marijuana is legal, because of the infrastructure they’ve been able to build out and the acquisitions they’ve been able to make.

Two of these companies are Tilray (TLRY) and Aphria (APHA), which themselves are due to merge, and whose shares will eventually be sold under Tilray. Both have seen huge appreciation this week, with Tilray up more than 130%..

“Aphria’s strategic acquisition of Sweetwater Brewing: I think that was a really great move for them, positioning them to succeed in the growing US market, particularly after you see some positive moves on the legislation front,” Little said.

Speaking specifically about Tilray and Aphria merging, he said: “It’s really going to create this behemoth that will really benefit as legislation opens up in the rest of the world, and the US in particular.”

Little also likes Canopy Growth (CGC), another Canadian firm. 

In addition to them being profitable and benefiting from business infrastructure tailwinds, he said their introduction of new product lines like CBD products for pets should be good for growth going forward.

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