A Utah-based mutual fund that built big positions in U.S. cannabis stocks has sold the stakes for an estimated $100 million. Orders from its own compliance department forced the firm to walk away from the U.S. cannabis industry, Barron’s has learned.
Wasatch Global Investors, through its Wasatch Micro Cap Value and Micro Cap funds, spent the last year building large stakes in several U.S. multistate cannabis operators, such as
Green Thumb Industries
(TRSSF), according to public filings.
But the two Wasatch funds exited their cannabis holdings in the first quarter, under instructions from its compliance unit, people familiar with the matter said. The funds began to unload shares in mid-February and fully exited their American weed positions by the end of March.
Wasatch declined to comment. The firm’s latest ownership disclosure, posted Tuesday, shows no ownership stake in the U.S. multistate cannabis operators, confirming the exit. Wasatch Global has $18.2 billion in assets under management, including the $1.5 billion Wasatch Micro Cap (WMICX) and the $380 million Wasatch Micro Cap Value (WAMVX).
It was not immediately clear why the compliance department ordered the move. Dozens of states allow cannabis sales under their own laws, but weed remains illegal under U.S. federal law. That federal ban means that American cannabis operations have had difficulty accessing financial services generally-available to public companies. The major financial exchanges won’t list U.S. weed stocks and long-only mutual funds have been reluctant to invest. American cannabis stocks trade over-the-counter in the U.S. or on the Canadian Securities Exchange.
The stocks climbed after cannabis reformers saw numerous victories in the November 2020 U.S. election.
But 2021 has proven more difficult. The
AdvisorShares Pure US Cannabis ETF
(MSOS), which holds a basket of U.S. cannabis positions, dropped 17% from Feb. 14 through the end of March. In the same stretch, the stock of Cresco Labs fell 18%, Green Thumb fell 20%, and TerrAscend sank 35%. The
index rose 2.2% during the same period.
As of Dec. 31, per Wasatch’s previous disclosure, the firm owned roughly $84 million worth of U.S. pot stocks, including $29 million of Green Thumb, $27 million of Cresco, $21 million of TerrAscend, and $7 million of Vireo Health (VREOF).
In January, Wasatch was among investors that bought shares of Cresco stock in a transaction totaling $125 million. The firm first began acquiring shares of multistate operators in early 2020, according to filings.
Wasatch’s decision to exit its U.S. cannabis positions is a sign of how tricky it is for U.S. weed companies to attract and retain investors. Still, Green Thumb and other cannabis businesses have had some success attracting institutional money. TIAA-CREF recently bought shares of Green Thumb. Putnam Investments bought a stake in TerrAscend.
Barron’s wrote positively about the opportunity in U.S. pot stocks in an April 30 cover story. Canadian cannabis producers are wholly legal in their country and shares can trade on the Nasdaq. But the Canadian companies lose money, while U.S. cannabis companies are profitable and have become a bigger industry.
Wasatch continues to hold shares of IM Cannabis (IMCC), a Nasdaq-listed marijuana producer with operations in Canada and Israel.
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