Cannabis stocks have been through the classic stages of the hype cycle – rallying on expectations for big things and crashing as they don’t live up to earlier promises. Many investors have lost interest but some are still holding out for a rebound thanks to pockets of positive news.

A good example is medicinal cannabis supplier Celadon Pharmaceuticals (CEL:AIM) which jumped as much as 124% on 14 March after the Home Office updated its licence, enabling the firm to start the commercial supply of medical cannabis.

This follows the company’s registration as a GMP (good manufacturing practices) manufacturer by the UK Medicines and Healthcare Products Regulatory Agency.

The directors believe it is the first GMP registration for a UK pharmaceutical facility to supply high tetrahydrocannabinol cannabis containing an active pharmaceutical ingredient since the legalisation of medical cannabis in 2018.

While the news for Celadon has been positive, its shares had previously spent two years in freefall, much like the wider sector. Most cannabis stocks and cannabis-themed tracker funds remain around 75% below the peaks reached in February 2021.

Shares highlighted the long-term potential for the sector in April 2021 but also cautioned the road ahead could be rocky because of its fledgling state and the challenges stemming from the negative image associated with cannabis.

In hindsight, it didn’t help that cannabis stocks got caught up in the meme stock mania during Covid lockdown which pushed share prices to unsustainable levels.

Trying to pick the best stocks among the few quoted players seemed a herculean task in 2021 and looks even more so today. Therefore, anyone who wants to have exposure might be better off considering a fund that provides diversified exposure to the broad medicinal cannabis and life sciences market rather than picking individual shares.

At $2.95, the price of Rize Medical Cannabis and Life Sciences ETF (FLWR) sits roughly where it was before the onset of the global pandemic, having peaked at more than $10 in 2021.

Its top holdings have changed slightly with a bigger exposure to large healthcare stocks such as PerkinElmer (PKI:NYSE) and Irish-based over-the-counter wellness products firm Perrigo (PRGO:NASDAQ).

The biggest change is that speciality gardening company GrowGeneration is no longer the fund’s largest holding and has dropped from 23% of the fund to 6% of assets.

Its largest holding is Jazz Pharmaceuticals (JAZZ:NASDAQ) which purchased GW Pharmaceuticals (the fund’s former largest holding) which provided it with a world-leading cannabinoid science platform.

While the general performance of cannabis stocks has been very disappointing the industry’s growth potential is still significant.

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