This holiday season, I came prepared for Christmas with the relatives.
My in-laws know that investing is my passion, so every time we have a family gathering, I get asked the same question: “What’s your best investment idea for next year?”
I don’t like answering that question because it can be difficult to make short-term investment calls.
And yes, I view making a 12-month call as short term.
This year is different, however.
I’m convinced that the AdvisorShares Pure US Cannabis ETF (NYSE: MSOS) will see an industrywide catalyst over the next 12 months.
This exchange-traded fund (ETF) is composed of American cannabis multistate operators, or MSOs.
MSOs are vertically integrated, meaning they grow and sell cannabis in their own retail stores.
There are two fundamental reasons I’m pounding the table on MSOs today…
First, these companies are rapidly growing both revenue and operating cash flow…
Annual growth rates for the top tier of these companies are in excess of 40%.
Even better, this growth is expected to continue for years as more states legalize.
Second, despite the rate these companies are growing at and will continue to grow at, their stock market valuations remain shockingly cheap.
Fast growth should command a premium valuation, not a discounted one.
At this point, the question you should be asking is this: “WHY are these fast-growing companies valued so cheaply?”
It’s because hardly anybody can own them… for now.
Because cannabis is still illegal at the federal level in the United States, institutional investors (mutual funds, pension funds and others) are not allowed to own these MSOs.
While alcohol and tobacco companies have 60% to 80% of their shares owned by mutual funds and large institutions, MSOs have 0% owned by institutions.
Trillions upon trillions of dollars of institutional money are being diverted from these stocks.
Further complicating matters is the fact that these companies can’t even list on a U.S. stock exchange because cannabis remains federally illegal in the U.S.
All of these stocks are currently listed in Canada, and that deters even more investors.
But that’s all about to change…
Buy Now Before Institutional Money Floods In
When it comes to cannabis in the U.S., I believe the future is clear…
Legalization is coming. The overwhelming majority of Americans support it.
More importantly, cannabis now has bipartisan support in Washington.
The Democrats have long been on board, and in November, Republican Rep. Nancy Mace of South Carolina introduced a bill to federally decriminalize cannabis.
Republican Sen. Rand Paul, who represents the deep red state of Kentucky, has also voiced support for legalization.
Big changes are coming to cannabis, and I believe they’ll come in 2022.
Once these stocks can list on major U.S. stock exchanges, institutional money will come pouring in.
To give you an idea of the upside we could be looking at for these MSOs, look at how Canadian cannabis companies are currently valued…
While Canadian operators trade at more than 30 times EBITDA (earnings before interest, taxes, depreciation and amortization), their faster-growing, more profitable American counterparts trade at a fraction of that amount.
I feel that now is the time to get invested in this sector before the institutions can, so act fast.
The best way to do that is through the AdvisorShares Pure US Cannabis ETF.
This is my No. 1 investment call for 2022.