Pot ETF Trio Soars 90% to Open 2021 on Legalization Hopes, M&A

The top performing exchange-traded funds so far in 2021 have at least one thing in common: They all track the pot industry.

The Global X Cannabis ETF (POTX), the Cannabis ETF (THCX) and Amplify Seymour Cannabis ETF (CNBS) -- have returned more than 90% year-to-date, according to data compiled by Bloomberg. Those three non-leveraged products have largely outpaced the 4% gain in the S&P 500 Index.

That outperformance of those funds in the $5.8 trillion ETF industry highlights how hopes for legalization on both the state and federal levels are boosting the cannabis market and unleashing a wave of mergers and acquisitions. Most recently, New York Governor Andrew Cuomo proposed to legalize marijuana in his state, while a Democratic majority in Congress is fueling optimism of more widespread approval measures.

Such legislation “could legitimatize it and spur demand for marijuana, which would make companies that were suppliers more profitable,” said Todd Rosenbluth, director of ETF research for CFRA Research.

Besides a more accommodative political climate toward the group, cannabis stocks are surging on expectations for profit growth as well as a pickup in mergers and acquisitions, according to Kenneth Shea, an analyst at Bloomberg Intelligence.

Canopy Growth Corp. -- a producer of medical marijuana -- jumped 5% at 10:28 a.m. in New York after reporting revenue that beat the average analyst estimate. Other pot stocks and ETFs also surged on Tuesday.