Forget Bitcoin, Watch ETFMG Alternative Harvest ETF and Sundial Growers

There's little doubt the first quarter of 2021 was an exciting period for cannabis stocks. A lot has happened since January. In the U.S., cannabis reform seems to be slowly but steadily moving forward as Democrats overtook the Senate in January. Left, right and centre cannabis laws advance, with New York being the latest U.S. state to introduce regulation on the adult use of cannabis.

Progress on recreational legalisation has taken place also in Mexico. Closer to home, the Mayor of London hints a cannabis revolution may just be on its way in the United Kingdom.

In between all of the legal developments, which always fiercely influence the performance of cannabis stocks, anonymous Reddit-bound investors helped boost gains predominantly for Canadian stocks in February.

Beyond the gains, some events negatively affected the performance of cannabis stocks. At the end of March, simultaneously as New York legalised cannabis, a federal investigation into whether Chicago's Green Thumb Industries had unlawfully influenced state politicians into legalising and licensing cannabis sales has led to a drop in over-the-counter trading for Green Thumb. Other cannabis stocks such as Curaleaf Holdings, Cresco Lab and Truelieve Cannabis, some of which considered the best cannabis stocks overall to follow for this year, also saw drops in price.

Cannabis Stocks That Performed Best in the First Quarter of 2021

One warning before listing the best players on the stocks: some of these firms already had a sink in April. It all recalls a familiar adage regarding the volatile cannabis market. No matter how well a certain stock might be performing, there is always the threat of something abruptly happening and dethroning someone who was seen as a big winner until yesterday.

Cannabis investors who are years into this market are familiar with such bumps, and traditional investors who like to play safe are advised to approach cannabis stocks with caution. Everything attests to an unordinary market to be part of, and nothing is set in stone.

According to Nasdaq, "during the first quarter, the marijuana-focused ETFMG Alternative Harvest ETF rocketed higher by nearly 60%, with investors flocking to the cannabis stocks like it was 2018 all over again."

However, as The Motley Fool's Sean Williams notes, it was four other cannabis stocks that "really stood out for their first-quarter gains. When the curtain closed, all four of these pot stocks ended the quarter higher by at least 139%."

Sundial Growers Was Up 139%

Sundial is a Canadian-based company, and as Williams also notes, it was one of those companies at the epicentre of the Reddit army. 

Reddit's WallStreetBets investors were busy buying shares through Robinhood for stocks with high levels of short interest, which proved to be one of the catalysers for Sundial. At one point, the Redditors caused the Sundial stocks to jump at a whopping 500%, after which an expected dramatic drop followed. Nevertheless, the squeeze was precisely the tonic Sundial needed.

The other reason that has catapulted this Canadian company to success has been its clean balance sheet, reports suggest. With no debt at all and some $572 million on the company's account, it's something that investors are keen to look at, especially in anticipation of full opening legalisation of the market in the U.S., where the firm could quickly expand.

Even though Sundial growers stocks plunged 15% for Sundial in the month of March, overall, it performed so well that it has retained huge attention and interest among investors. It's also worth mentioning that the company played the game well in 2019 when it made a successful retail transition from primarily wholesale pot sales to higher-margin branded retail products. 

It now remains to see what will the rest of the year bring for this cannabis manufacturer.

OrganiGram Holdings Went Up 161%

Another lauded cannabis stock was OrganiGram, also from Canada. Its stocks jumped to 161%, and this beautiful bump owes to advancing legalisation, Reddit, and a freshly announced strategic collaboration with British American Tobacco altogether.

While the Reddit frenzy boosted OrganiGram, despite its short interest isn't so high as other companies, the real reason behind its uber success in the first quarter of this year was its affiliation with the tobacco giant.

It was announced on March 11 that OrganiGram would enter a C$221 (US $175) million worth strategic research and development collaboration with BAT.

A subsidiary of BAT has subscribed to approximately 58.3 million common shares of OrganiGram, which amounts to 19.9% equity interest, while the research development effort would entail at least in the beginning focus on CBD derivative products. The collaboration should effectively introduce the OrganiGram brand to the European market, but also other international markets.

The collaboration strengthens the competitive advantage of OrganiGram, which is already well-positioned and could benefit long-term from sales of CBD derivatives, the popularity of which is unlikely to fade anytime soon.

Aphria & Tilray Went Up 166% and 175%

Perhaps unsurprisingly, Aphria and Tilray turned out the big winners for the first quarter of 2021. Their mention goes together as it won't be long before this duo merges, with the merger already being announced at the end of last year.

Aphria jumped 166%, and Tilray jumped 175% in the first three months. Both companies are Canadian, which speaks volumes of the dominance of Canadian manufacturers on the market.

Beyond the merger, which improved the standings of Aphria and Tilray already before they entered the new fiscal year, the duo also gained from the Reddit fever in February.

As Williams from The Motley Fool notes, "In particular, Tilray has long been one of the most short-sold pot stocks. As of mid-February, nearly 28 million shares of the company's 144.7-million share float was held by short-sellers."

It remains to see what the combined company of Aphria and Tilray will bring to the future stocks. The first has sufficient capacity to manufacture cannabis and has a steady cash flow from its pharmaceutical line. The new company will be known only as Tilray and as good as new will enter a market where it's already established.

Already Giving Up Some of the Gains

Although Aphria had an incredible jump on the cannabis stocks in the first quarter of 2021, its shares went down around mid-April after the company disclosed not-so-flattering fiscal third-quarter results.

The fiscal report suggested a relative lack of growth over the past year, as The Motley Fool's Dan Caplinger writes. 

There could be several good explanations what stabbed growth of Aphria during last year, something which is coming to the surface only now, after a well-performed first quarter of the new year. 

"It's easy to forget as coronavirus vaccine rollouts continue, but much of Aphria's market in Canada and Germany was subject to COVID-19 lockdown measures throughout [the] quarter. The resulting supply guilt also weighed on pricing, which hurt gross margin levels," writes Caplinger. 

Whatever the reason for the unfavourable report, it sent a shockwave to other cannabis stocks. The first to suffer was Tilray, with a drop of 13% in its stock worth. With drops between 9% and 5%, Aurora Cannabis, Cronos Group and Canopy Growth were also affected down the line.  

Cannabis ETFs also suffered losses at the beginning of last week, with both ETFMG Alternative Harvest and AdvisorShares Pure Cannabis going down by nearly 5%. But overall, this translates to merely giving up a fraction of the gains that were made this year.

This and any other such shockwave will be a past before you know. And well before another headline colour the front pages of finance publishers, making the cannabis stocks go up and down again and again. The wheel has to keep on moving.