Marijuana stocks have taken the investing world by storm, and investors have jumped into many of the newest entrants in the cannabis space. With only a limited number of individual marijuana stocks that trade on the NYSE or Nasdaq exchanges, many of those seeking to take a stake in the cannabis industry have chosen to do so through the ETFMG Alternative Harvest ETF (NYSEMKT:MJ), which concentrates on stocks with a connection to various cannabis products.

Recent hype about the prospects for a boom in sales following the legalization of recreational cannabis in Canada in mid-October led to a big rally for pot stocks during the late summer months. Yet for the Alternative Harvest ETF, much of those gains went toward making up for poorer performance early in the year, and a post-legalization letdown has sent the ETF's shares back to a year-to-date loss.

MJ Chart

MJ data by YCharts.

A wild ride for the marijuana ETF

The Alternative Harvest ETF came into 2018 on a high note, having established itself as a key player in the marijuana investing world. The ETF had recently changed its focus away from Latin American real estate to concentrate on the budding cannabis industry. The fund wasn't strictly a pure-play marijuana ETF, as it allowed for investment not just in cannabis cultivation companies but also in healthcare companies exploring cannabis-derived treatments, tobacco and smoking accessories companies, and fertilizer and plant food companies. But it was heavily enough concentrated in well-known up-and-coming cannabis stocks that it gained traction with investors quickly.

After a brief jump to begin the year, investors started to lose interest in marijuana-related stocks in the late winter and spring. Alternative Harvest sank to declines of nearly 20% by April, and a slow summer for the industry led to the ETF revisiting those low levels for the year. Even as a number of cannabis companies went public and became available to a broader audience of investors, the ETF's share price remained under pressure.

Stats on ETFMG Alternative Harvest ETF

Date Current Investment Objective Adopted

Dec. 26, 2017

Assets Under Management

$681 million

Expense Ratio

0.75%

Number of Holdings

40 stocks

Data source: ETFMG.

Big ups, big downs

In August and September, Alternative Harvest came alive. Interest in cannabis stocks soared once it became clear that the Canadian government would follow through on its mid-June announcement to move forward with legalizing recreational cannabis by mid-October. That sent shares of the many Canadian marijuana companies that the ETF held to new heights, and that in turn produced big gains for the fund itself. By late September, Alternative Harvest was up as much as 30% for the year, and shares remained in that general area for the next several weeks.

However, the gains didn't last long. Once the Canadian recreational cannabis market actually opened up, many of the same marijuana stocks that had jumped so high fell sharply. There's been plenty of volatility in the past month as stocks in the industry have responded to rapidly changing market conditions and early information has come in about the Canadian rollout. However, with several key players in the cannabis industry having released earnings results that failed to inspire rebounds in share prices, Alternative Harvest has been stuck at relatively low levels.

Cannabis leaves piled on top of each other.

Image source: Getty Images.

What's ahead for ETFMG Alternative Harvest ETF?

At this point, it's tough to predict exactly what the next catalyst for potential gains for Alternative Harvest might be. Legalization efforts elsewhere are proceeding, and victories in a couple of states in the U.S. in the November election could drive incremental progress toward the long-term goal of opening the U.S. market to cannabis. That would not only provide bigger markets for established cultivators but also open up investment to many U.S.-based operators that currently operate under friendly state laws but still face potential federal-law issues.

One thing's clear, though: Investors aren't going to stop paying attention to marijuana stocks anytime soon. With the pace of growth in the industry set to remain rapid, bullish shareholders in Alternative Harvest have confidence that the companies that are leading the way forward for cannabis investing now will survive to become the leaders of tomorrow -- and that the ETF will have the right holdings to take full advantage.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.