Investing

Is This a Buying Opportunity for Cannabis ETFs Going Into 2020?

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 in 2018. 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 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 four ETFs already on the markets for U.S. investors, expect that more will be coming down the pipe. To prove the point, the famed CNBC contributors, the Najarian brothers started a cannabis ETF over the summer.

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 $43.3 million in assets under management. Its overall expense ratio is 0.74%, and it has traded down about 53% so far since it became public. This ETF has 30 holdings. The top 10 include a mix of foreign and domestic companies:

  1. Cash (20.36%)
  2. Innovative Industrial Proper (6.62%)
  3. Village Farms International (4.49%)
  4. GW Pharmaceuticals (5.51%)
  5. Corbus Pharmaceuticals (4.86%)
  6. Valens Groworks (4.82%)
  7. OrganiGram (4.37%)
  8. Aphria (4.34%)
  9. Arena Pharmaceuticals (3.68%)
  10. Zynerba Pharmaceuticals (3.58%)

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 $679.9 million in assets under management. Its overall expense ratio is 0.75%, and it has traded down 33% so far in 2019. This fund has 37 holdings, and the top 10 include a few, more sizable U.S. biotechs:

  1. Canopy Growth (8.85%)
  2. Cronos Group (7.64%)
  3. GW Pharmaceuticals (6.99%)
  4. Tilray (6.82%)
  5. Aurora Cannabis (5.12%)
  6. Corbus Pharmaceuticals (4.74%)
  7. Aphria (4.43%)
  8. Medipharm Labs (3.50%)
  9. HEXO (3.27%)
  10. OrganiGram (3.23%)

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 $11.9 million in assets under management, its overall expense ratio is 0.99%, and it was last seen trading up 20% so far this year. Its top 10 holdings include mostly alcohol and tobacco firms, but the fund’s fact sheet shows that there is exposure to cannabis-related companies, to alcohol with cannabis-related exposure and to tobacco with cannabis-related exposure. This might make the top 10 holdings seem odd, but the ETF has 31 holdings in all:

  1. Thermo Fisher Scientific (6.22%)
  2. Abbott Laboratories (5.44%)
  3. AbbVie (5.39%)
  4. Novartis (4.95%)
  5. LVMH Moet Hennessy Louis Vuitton (4.80%)
  6. Boston Beer (4.65%)
  7. Scotts Miracle-Gro (4.60%)
  8. RCI Hospitality (4.43%)
  9. Brown-Forman (4.21%)
  10. Phillip Morris International (4.06%)

The Cannabis ETF (NYSEARCA: THCX) entered the market in July 2019. The fund primarily targets companies that are involved with cannabis, both on the medical and recreational side. The ETF also offers exposure to companies that grow and distribute cannabis. It has $15.5 million in assets under management, its overall expense ratio is 0.70%. Since the ETF has come public it has traded down about 49%. This fund has a total of 34 holdings, but here are the top 10:

  1. Canopy Growth (8.63%)
  2. Cronos Group (8.13%)
  3. GW Pharmaceuticals (7.75%)
  4. Aphria (7.69%)
  5. Scotts Miracle-Gro (7.49%)
  6. Tilray (6.75%)
  7. Aurora Cannabis (6.58%)
  8. Charlotte’s Web Holdings (6.18%)
  9. PerkinElmer (3.45%)
  10. Medipharm Labs (3.04%)