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A fund that benefits from pot stocks is up 30% and is the top market performer for August

Key Points
  • The best-performing ETF in August has been the ETFMG Alternative Harvest fund, which has gained close to 30 percent.
  • A big jump in deal activity over the past year has paid dividends as underlying companies in the fund saw huge gains in the latter part of the month.
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The best-performing exchange-traded fund over the past month is one that has benefited from a flurry of activity in the marijuana industry.

The ETFMG Alternative Harvest fund has gained just shy of 30 percent through Aug. 29, putting it ahead of any other non-leveraged fund. Its performance was topped only by two ETFs that offer triple the downside of gold miner stocks, which have gotten clobbered.

For the $436 million MJ fund, the outperformance has come thanks to "a veritable boom in the fund's underlying stocks," ETF.com's Lara Crigger wrote Wednesday.

In particular, big alcohol companies such as Constellation Brands, Molson Coors Brewing and Diageo have taken significant stakes in Canadian marijuana companies. In addition, Scotts Miracle-Gro in April bought Sunlight Supply, the leading U.S. hydroponics distributor.

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Last October, Constellation took a 9.9 percent stake in Canopy Growth, a leader in medical marijuana whose stock has surged 81 percent since Aug. 15 as of Thursday's open. Canopy is the second-largest holding in MJ; Cronos Group is the largest, and its shares have exploded 114 percent since the mid-August low.

The ETF, however, was down sharply Thursday due to some profit-taking and a warning from analysts at Citron that Cronos faces severe downside risks.

Citron is a short-seller of Cronos and says the company "appears to have been deceiving the investing public by purposely not disclosing the size of its distribution agreements with provinces," according to a note cited by shareholder rights law firm Johnson Fistel, which said it is investigating Cronos for potential violation of securities laws.

CNBC has reached out to Cronos for comment.

Pot stocks were down across the board, with MJ sliding 4.3 percent in afternoon trade.

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