What a Marijuana ETF Would Look Like (Updated)

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The changes taking place around marijuana for medical use and for recreational use are the biggest in almost everyone’s lifetime. There are quite literally billions of dollars up for grabs for those who capitalize on the trend. There are also significant risks, both for investors and those who decide to get into the business. We might not be able to help those in the business with banking, tax, legal and security tips, but we do have a thought for the community who wants to invest passively in the massive growth potential of marijuana: How about a marijuana ETF!

An old saying that we keep using is that there is an exchange traded fund (ETF) for just about any investing theme you can think of. Still, marijuana is a relatively new legal industry regionally, with very few legitimate public companies in the sector that have generated revenues and that have been run by officers who know what it takes to be a public company.

A marijuana stock ETF may be quite a ways off. There are only two states with legalization in place, and we have identified the next nine states with efforts underway for 2014 to 2016 legalization. An ETF would aim to filter out all the penny-stock scam marijuana company risks to buffer investors and would set up criteria for how investors should evaluate them.

Before you think that this idea of a marijuana ETF is too outlandish to consider, look elsewhere at many of these crazy niche sectors. There are ETFs that mimic merger-arb investing, rare earths metals, lithium producers, companies run or dominated by women, uranium, wind energy, livestock and on and on. So, why would a marijuana ETF be out of the ordinary?

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It seems likely that whichever fund family would launch a so-called marijuana ETF would not just be able to limit the focus to U.S.-only companies. That is common enough in ETFs.

Now, keep in mind that both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have both gone as far as to issue formal warnings about marijuana stock and investing scams. Again, this means an ETF could buffer investors against the penny-stock scammers.