Amplify Seymour Cannabis ETF No Longer a Buy: Sell Recommendation

The Amplify Seymour Cannabis ETF is no longer a buy due to its recent surge in value. The ETF is a cannabis MSO and has seen a significant increase in value over the past six months. The author recommends selling the ETF, citing reasons that are not specified in the provided snippet.

The Amplify Seymour Cannabis ETF (NYSEARCA:CNBS), a cannabis multi-state operator (MSO) ETF, has seen a significant increase in value over the past six months, leading an analyst to issue a sell signal. Maria Vonotna, the author of the analysis, recommends investors to sell the ETF due to its recent surge in value and certain market conditions.

Market Performance and Concentration
CNBS, as of February 7, 2023, was trading at $22.20 and has since surged to over $27.52. This represents a 24.0% increase year-to-date. The ETF, which focuses on MSOs, has seen its share count increase to 3.6 million shares outstanding, with a market cap of $96 million. In contrast, the AdvisorShares Pure US Cannabis ETF (MSOS), which has a larger market cap and more diverse holdings, has seen its share count increase to 151.775 million shares for a market cap of $693.6 million. However, MSOS has also seen a significant increase in value, rising by 28.3% year-to-date.

Concentration and Risk
Vonotna points out that CNBS has a heavy concentration of its holdings in just three names, which together make up 48.2% of the ETF. This concentration exposes investors to significant risk, as the performance of these three companies will have a disproportionate impact on the ETF's overall performance. In comparison, MSOS has a more diversified portfolio, with large positions in these three companies totaling 69.3%.

Regulatory Uncertainty
The recent surge in CNBS's value can be attributed to speculation about the rescheduling of cannabis from Schedule 1 to Schedule 3, which could potentially eliminate 280E taxation. However, this remains uncertain, and investors should be aware of the risks if the rescheduling does not occur. The DEA has confirmed it is seeking to reschedule cannabis, but it has previously failed to do so.

Alternative Investments
Vonotna also suggests that investors consider alternative investments, such as the Canadian LPs or ancillary names like GrowGeneration (GRWG), Innovative Industrial Properties (IIPR), and WM Technology (MAPS). These names have a more balanced exposure to the cannabis industry and may be less risky than the MSOs currently held by CNBS.

Conclusion
Given the recent surge in CNBS's value and the concentration of its holdings, Vonotna downgrades the ETF from a buy to a hold recommendation. She also has a strong sell signal for MSOS, despite its recent increase in value. For investors who believe that 280E taxation will be eliminated, the MSOs may ultimately do better, but they could also pull back from equity offerings. For those who believe that 280E will not go away, CNBS is likely a good sell candidate.

References
[1] https://seekingalpha.com/article/4812510-amplify-seymour-cannabis-etf-no-longer-a-buy
[2] https://www.nerdwallet.com/article/investing/marijuana-etfs