Wall Street Has a New Strategy for Legal Marijuana - Whenever That Happens

Investing

Published: May 9, 2019 11:01 am

Last Updated: January 17, 2020 10:37 am

With evolving societal and regulatory landscapes, the upside potential of cannabis as a new investment strategy has emerged to complement the historically resilient characteristics of alcohol and tobacco. Cannabis stocks had a huge showing on Wall Street this past fall. In fact, most of the news flow surrounding these stocks had investors pouring money into them. Some of the stocks even doubled or tripled in value in this time.

Although a fair number of these companies are based outside the United States, many of them trade on U.S. exchanges. Marijuana is still illegal within U.S. borders on a federal level, but with Canada legalizing weed back in October and with many U.S. states making it legal for medical or recreational use, many people believe that the United States will follow in the near future.

Many investors are focused on getting the jump on the cannabis industry, but they aren’t alone. With this increased speculation, there is added risk that has to be considered.

While cannabis represents a new investment frontier, proper caution and due diligence must be exercised surrounding its regulations and risks.

To mitigate this risk and concern about picking the winners or the losers within these industries, or even to shield against regulatory measures hitting a single company, exchange-traded funds (ETFs) offer a sampling and exposure to this market without an all-or-none risk in any single company’s stock. As the saying goes: “There’s an ETF for that strategy.” ETF Database has collected much of the information about these ETFs, among others, and made it easily accessible for those looking to get into the game. And investors can use a number of ETFs to invest in the future of cannabis.

While there are three ETFs already on the markets for U.S. investors, it should be expected that more will be coming down the pipe. To prove the point, the famed CNBC contributors, the Najarian brothers, are looking to start a cannabis ETF.

AdvisorShares Pure Cannabis ETF (NYSEARCA: YOLO) just started trading in mid-April. This fund seeks to provide a compelling case to investors seeking emerging growth and dedicated cannabis exposure for their portfolios. It was last seen to have $43.5 million in assets under management. Its overall expense ratio is 0.74%, and it has traded down about 1% so far since it became public. This ETF has 24 holdings. The top 10 holdings include a mix of foreign and domestic companies:

OrganiGram (8.42%)
Green Organic Dutchman (8.11%)
Aphria (6.99%)
CannTrust (6.99%)
Innovative Industrial Proper (6.62%)
HEXO (6.54%)
Cara Therapeutics (5.71%)
Canopy Growth (5.13%)
Aurora Cannabis (4.75%)
Village Farms International (4.49%)

ETFMG Alternative Harvest ETF (NYSEARCA: MJ) has been around since December 2015 and aims to track the Prime Alternative Harvest Index. This fund is designed to measure the performance of companies within the cannabis ecosystem benefitting from global medicinal and recreational cannabis legalization initiatives. It has $1.27 billion in assets under management. Its overall expense ratio is 0.75%, and it has traded up 39% so far in 2019. This fund has 36 holdings, and the top 10 include a few, more sizable U.S. biotechs:

Aurora Cannabis (9.89%)
GW Pharmaceuticals (9.15%)
Canopy Growth (7.96%)
Cronos Group (6.73%)
HEXO (5.31%)
Tilray (4.92%)
Green Organic Dutchman (4.81%)
OrganiGram (3.70%)
Corbus Pharmaceuticals (3.64%)
CannTrust (3.38%)

AdvisorShares Vice ETF (NASDAQ: ACT) has been around since December 2017. The fund primarily targets companies that are involved with alcohol or tobacco. It has $13.3 million in assets under management, its overall expense ratio is 0.75%, and it was last seen trading up 18% so far this year. Its top 10 holdings include mostly alcohol and tobacco firms, but the fund’s fact sheet shows that there is 24% exposure to cannabis-related companies, 5% exposure to alcohol with cannabis-related exposure and 9% tobacco with cannabis-related exposure. This might make the top 10 holdings seem odd, but the ETF has 33 holdings in all: