A GROWING NUMBER OF marijuana exchange-traded funds were launched in 2019, giving investors more options to invest in the sector. Adding individual marijuana stocks to your portfolio can be risky because there is increased volatility. Actively managed ETFs can be a better option because…
portfolio managers can divest companies that are problematic, such as CannTrust Holdings, which was growing cannabis illegally and filed for bankruptcy protection in March, says Jason Spatafora, co-founder of marijuanastocks.com and a Miami-based trader and investor.
“If the ETF is passive, they can get in a situation where one of the companies do something stupid, and they have to hold onto that position,” he says.
During the past year, there has been a lot of volatility in the sector, says Michael Berger, founder of Technical420, a Miami-based company that conducts research on cannabis stocks.
“We believe that an actively managed ETF would be the right strategy for this type of market,” he says.
The cannabis market is blooming since it has been considered an essential business during the pandemic. By 2025, the industry will grow to $33.9 billion with a compound annual growth rate of 18.2%, according to a recent report by The Arcview Group, a San Francisco-based cannabis investment and research firm.
The market is expanding as more states legalize the adult use of marijuana – revenue in Massachusetts topped $420 million in the first full year of adult-use sales in 2019. Even markets where the recreational use of cannabis has been legal for several years are seeing sales increase. Colorado cannabis revenue rose by 13% to $1.7 billion in 2019 compared with just 3% growth in 2018.
The Marijuana Policy Project, a Washington-based advocacy group, is working toward the passage of additional bills by which the cannabis business would be regulated similar to the alcohol industry in Vermont and Connecticut. The group is also working to legalize the sale of marijuana in Rhode Island, Maryland and Delaware.
ETFMG Alternative Harvest ETF (ticker: MJ)
The ETFMG Alternative Harvest ETF went public in 2015 on the NYSE Arca and includes 36 marijuana stocks. The ETF rebalances quarterly, has an expense ratio of 0.75% and allows investors to buy calls and puts and short the ETF. MJ is the first U.S. and world’s largest cannabis ETF, with $581 million in assets and a generous dividend yield of 7.25%. The passively managed ETF’s top three holdings are GW Pharmaceuticals (GWPH) at 10.7%, Cronos Group (CRON) at 9% and Canopy Growth Corp. (CGC) at 7.97%.
Horizons Marijuana Life Sciences Index ETF (HMMJ)
The Horizons Marijuana Life Sciences Index ETF started trading in April 2017 on the Toronto Stock Exchange. The ETF is benchmarked to the North American Marijuana Index and has an expense ratio of 0.75%. The top holdings in this passively managed ETF as of June 12 are GW Pharmaceuticals at 12.7%, Canopy Growth at 12.4% and Cronos Group at 12.1%.
AdvisorShares Pure Cannabis ETF (YOLO)
The AdvisorShares Pure Cannabis ETF began trading on the NYSE Arca in April 2019 and charges an expense ratio of 0.74%. This ETF provides a generous dividend yield of 7.26% and is actively managed with $45 million in assets. The ETF tracks U.S. and Canadian companies that are involved in consumer products, real estate and health care. The top three holdings are Innovative Industrial Properties (IIPR) at 9.5%, Village Farms International (VFF) at 8.4% and GW Pharmaceuticals at 7.9%.
Horizons US Marijuana Index ETF (HMUS)
The first U.S.-focused marijuana ETF, the Horizons US Marijuana Index ETF began trading in April 2019 in Canada with an expense ratio of 0.85%. As of June 12, the ETF holds 30 U.S. companies and owns 11.4% in Green Thumb Industries (GTIBF), 11.4% in Curaleaf Holdings (CURLF) and 10.7% in Trulieve Cannabis Corp. (TCNNF).[
The Cannabis ETF (THCX)
The Cannabis ETF began trading in…
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