Investors can add ETFs instead of choosing stocks for their portfolios.
Depending on whether a cannabis exchange-traded fund is actively managed or follows a benchmark, prices can be less volatile than those of individual stocks. Many investors choose to simplify their cannabis investing strategy by picking cannabis ETFs since individual cannabis stock selection can be riskier. Factors such as poor performance and debt utilization could result in incorrect analysis and extreme volatility, says Aaron Raub, senior equity analyst at Ambria Capital. “Cannabis index funds don’t always frequently rebalance their portfolios, which can give an active cannabis ETF manager the upper hand to take advantage of short-term volatility movements or mergers and acquisition transactions that transform the overall landscape.” Here are six cannabis ETFs to consider.
Amplify Seymour Cannabis ETF (ticker: CNBS)
Amplify Seymour Cannabis ETF is actively managed, and 80% of the stocks are pure-play cannabis companies. Active management is important because stock prices can move daily from news of mergers and acquisitions and analyst sentiment, says Timothy Seymour, founder of Seymour Asset Management in New York and portfolio manager of Amplify Seymour Cannabis ETF. CNBS is outperforming cannabis ETFs that invest solely in the U.S. and those that are not allowed to invest in U.S. plant-touching companies, including both active and passive ETFs. The ETF is up more than 130% over the past year. “We are not spreading the allocation for investors over a U.S. dedicated fund and a global fund. Investors in CNBS have total exposure here. In our view, the sector doesn’t warrant such segmentation, and it’s confusing for investors,” Seymour says. The ETF’s largest holdings are WM Technology (MAPS) at 8.5%, Tilray (TLRY) at 8.02% and Canopy Growth Corp. (CGC) at 6.51% as of June 25.
AdvisorShares Pure US Cannabis ETF (MSOS)
Another actively managed ETF is AdvisorShares Pure US Cannabis ETF that started trading in September 2020. It holds large percentages of the largest multistate operators, including Green Thumb Industries (GTBIF) at 12.77%, Curaleaf Holdings (CURLF) at 12.37% and Trulieve Cannabis Corp. (TCNNF) at 11.37% as of June 25. MSOS is an ETF that offers exposure to large U.S. cannabis operators, and investors will find that the trade-off is receiving exposure to the best three marijuana companies in the world, says Jason Spatafora, co-founder of MarijuanaStocks.com and head trader at True Trading Group. Some of the downsides of the ETF are that it holds companies that sometimes lack the market’s full attention, he says.
AdvisorShares Pure Cannabis ETF (YOLO)
The AdvisorShares Pure Cannabis ETF is actively managed and tracks Canadian and U.S. companies that are in the consumer products, health care and real estate industries. The top three holdings are Village Farms International (VFF) at 15.13%, Innovative Industrial Properties (IIPR) at 9.04% and GrowGeneration Corp. (GRWG) at 6.57% as of June 23. Three of the leading cannabis ETFs are CNBS, YOLO and MSOS, Raub says. In addition to plant-touching cannabis companies, many of the cannabis ETFs focus on the ancillary side of cannabis. “GrowGeneration is a frequently held position in cannabis ETFs due to the company’s historical stock price performance, a management team that executes and a strong balance sheet,” he says. “Active managers have been able to use short-term fluctuations in price often on leading companies like GRWG to their advantage as many times the overall market unfairly punishes historically strong companies, and shrewd active managers can act on this.”
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 and has an expense ratio of 0.85%. The stocks of cannabis companies are only rebalanced quarterly in passive ETFs and follow a benchmark. The ETF holds U.S. companies and owns 11.06% in Cresco Labs (CRLBF), 10.35% in Curaleaf Holdings and 10.28% in Columbia Care (CCHWF) as of May 28.
Cannabis ETF (THCX)
The Cannabis ETF began trading in July 2019 and has an expense ratio of 0.7%. The ETF is passively managed and tracks the Innovation Labs Cannabis Index. While the fund only has $158 million in assets, it provides a dividend yield of 2.64%. The top three holdings are Canadian producer Tilray at 6.83%, Canopy Growth Corp. at 6.55% and Village Farms International at 6.08% as of June 24.
ETFMG Alternative Harvest ETF (MJ)
ETFMG Alternative Harvest ETF launched in 2015 and now has $1.93 billion in assets under management. The ETF follows the Prime Alternative Harvest Index and has an expense ratio of 0.75%. The top three holdings as of June 25 are Tilray at 9.4%, GrowGeneration Corp. at 8.86% and Canopy Growth Corp. at 7.87%. The cannabis industry is now worth more than $50 billion and is estimated to triple by the end of the decade, Seymour says. As more companies go public in the U.S., investors have more opportunities to gain exposure to different subsectors within the cannabis industry, including technology and ancillary companies, he says.
Best marijuana ETFs to buy in 2021:
— Amplify Seymour Cannabis ETF (CNBS)
— AdvisorShares Pure US Cannabis ETF (MSOS)
— AdvisorShares Pure Cannabis ETF (YOLO)
— Horizons US Marijuana Index ETF (HMUS)
— Cannabis ETF (THCX)
— ETFMG Alternative Harvest ETF (MJ)
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Update 06/29/21: This story was published at an earlier date and has been updated with new information.