A fund that's crushing most of its peers this year reveals why it's betting big on legal cannabis - and the single stock driving its outperformance

• The Zevenbergen Genea Fund has outperformed most of its peers this year with great help from a cannabis stock.
• The fund invests for the long haul in high-growth stocks, and sees the legal-cannabis market as one it absolutely must participate in.

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 the end of October.

The firm also features the $29 million Zevenbergen Genea Fund, which is in the 99th percentile of all competing funds over the past 1- and 3-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.

Here's a quick recap of the stock's wild ride in 2018. It started the year at $17 and surged 1,159% from that price to its peak on September 19. But an investor who bought shares right at the top is now down by a whopping 98%.

Year-to-date, however, the stock is still up by about 349%.

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.

Read more: We interviewed Wall Street's 8 top-performing investors to get their best ideas for 2019

Additionally, the fund places a premium on founder-led companies. Like Tesla, Tilray fit the bill. 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 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, four states had marijuana legalization on their ballots, bringing the number of states that permit usage by all adults to 10. Residents of 33 states now have some legal access to marijuana.

Cowen forecasts that the legal weed market in the US will grow to $75 billion by 2030. Should the US and EU legalize marijuana federally, the market could swell to be worth $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.