- The Zevenbergen Genea Fund has outperformed most of its peers this year with great help from a cannabis stock.
- The fund, which invests for the long haul in high-growth stocks, sees the legal-cannabis market as one in which it must participate.
Zevenbergen Capital Investments was home to the top-performing equity fund in the US in 2018, which surged 27% over a one-year period through October.
The firm also features the $29 million Zevenbergen Genea Fund, which is in the 99th percentile of all competing funds over the past one- and three-year periods.
No stock was more instrumental in boosting the Genea Fund's returns than Tilray, the Canadian medical-cannabis producer that became the poster child of Wall Street's sudden interest in legal marijuana.
The stock has had a wild ride in 2018. It started the year at $17 and surged 1,159% from that price to its peak on September 19. An investor who bought shares at the top would be down by a whopping 98% now, but the stock is still up by about 349% year-to-date.
The Seattle-based Zevenbergen Fund stayed on top of all the price action, raking in returns along the way. Amid the wild volatility, it selectively added to and took profits from its positions.
"We believe we're in at the top of the first innings for global, legal commercialization of cannabis, and really reaching a tipping point for the end of global prohibition," Joseph Dennison, a portfolio manager, told Business Insider by phone.
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Additionally, the fund places a premium on founder-led companies. Like Tesla, Tilray fit the bill. Its CEO, Brendan Kennedy, founded Privateer Holdings, the private-equity company that owned Tilray before it went public.
Shares of Tilray and other companies including Aurora Cannabis and Canopy Growth spiked in the run-up to Canada's legalization of marijuana, which became official on October 9. Canada was the first G7 country to legalize nationwide sales, giving Tilray the opportunity to establish a leadership position in its market, Dennison said.
"We believe that every market that eventually moves towards legal adult use will start in the medical realm," he said. He also sees the opportunity for a bigger alcohol, tobacco, or pharmaceutical company to partner with Tilray.
During the US midterm elections in November, four states had marijuana legalization on their ballots, with Michigan raising the number of states that permit use by all adults to 10. Residents of 33 states now have some legal access to marijuana.
Cowen forecasts that the legal US weed market will grow to $75 billion by 2030. Should the US and the European Union legalize marijuana federally, the market could swell to $194 billion, according to a BMO estimate.
Projections like these drive the Zevenbergen Fund's interest and investment in the space.
"As growth managers, it's impossible for us to ignore an industry that's going from essentially zero in legal dollars of revenue to hundreds of billions over the next decade," Dennison said.
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