5 Best Marijuana ETFs

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.