Here are six relatively safe ways you can invest in legal marijuana.
With global supply chain disruptions wreaking havoc on cannabis companies, the pandemic has taken its toll on the marijuana industry: Despite a hot start to the year, the Innovation Labs Cannabis Index fell 28% from the end of 2020 through Dec. 21. But there’s a lot of room for potential growth. According to Grand View Research, the global legal marijuana market was valued at $9.1 billion in 2020 and should grow at a compound annual rate of 26.7% from 2021 to 2028. While marijuana is still illegal at the federal level in the U.S., medical marijuana is legal in 37 states and recreational cannabis is legal in 18 states plus Washington, D.C. Vivien Azer, managing director and senior analyst at Cowen, is even looking for the current Congress to potentially pass a modified version of the STATES Act to decriminalize cannabis at the federal level. And with Pew Research reporting that 60% of U.S. adults believe cannabis should be legal for both medical and recreational use, investors might want to take a second look at cannabis exchange-traded funds, or ETFs, which can carry less risk than individual stocks.
AdvisorShares Pure U.S. Cannabis ETF (ticker: MSOS)
The first ETF on this list is also the newest. But MSOS is the first and only actively managed ETF exclusively tracking U.S. cannabis stocks, and in the world of ETFs, first-mover advantage shouldn’t be overlooked. MSOS’s investment strategy has proven to be popular, and the fund has more than $900 million in net assets. This ETF doesn’t pay a dividend and has an expense ratio of 0.73%. This is the only ETF on this list with 10-day average trading volume reaching into the millions of shares, which is good for liquidity.
Global X Cannabis ETF (POTX)
POTX is also relatively new, but it is a great choice for investors seeking a smart overall investment in the cannabis sector. An actively managed fund with more than $100 million in assets under management, POTX has a relatively low expense ratio of 0.51%. Clocking in at more than 200,000, its 10-day average trading volume is the second highest on this list. Of course, cannabis laws in the U.S. are still a little tricky, so investors looking for the best cannabis exposure might want to look beyond America’s borders, which this ETF does. International companies are looking to be the first to break into American markets as laws continue to change.
AdvisorShares Pure Cannabis ETF (YOLO)
In addition to developing MSOS, AdvisorShares also started YOLO, which includes holdings that are based outside the U.S. YOLO launched in April 2019. And as mentioned earlier, first-mover advantage is important for ETFs. It’s tough to unseat a sector’s first fund in terms of trading volume and assets under management. This fund manages more than $190 million in assets. At 0.76%, YOLO’s net expense ratio is slightly higher than MSOS’s, but it also pays a 0.26% dividend yield. YOLO is the only one on this list that holds a five-star rating from CFRA Research, meaning that CFRA expects the fund to outperform in the coming eight months.
Amplify Seymour Cannabis ETF (CNBS)
Already serving on the board of several private cannabis companies, CNBS portfolio manager Tim Seymour knows his way around the cannabis industry. He’s also built and operated two hedge funds and raised more than $1 billion for his combined businesses, so he understands the ins and outs of finance, as well. As far as CNBS goes, this actively managed fund has more than $80 million in assets under management. The fund’s net expense ratio is 0.75%, which is similar to good actively managed ETFs from any sector and pretty common among today’s cannabis ETFs. As far as pure cannabis plays go, 80% of CNBS’s holdings derive at least 50% of their revenue directly from cannabis. The same can’t be said for every ETF on this list.
Cambria Cannabis ETF (TOKE)
TOKE has only about $25 million in assets under management, which is the lowest on this list. Also, this actively managed fund has traded an average of just 17,200 shares over the past 10 days. Not to mention, the fund was founded in July 2019. Two of the other funds on this list, CNBS and THCX, were founded at the same time. So this fund isn’t the oldest cannabis ETF out there. But it’s also not the newest. TOKE has simply never gotten off the ground as well as some others. However, with its cheaper 0.42% net expense ratio, TOKE is still worth a second look from any serious cannabis investor.
The Cannabis ETF (THCX)
THCX, the only passively managed fund on this list, still has a net expense ratio of 0.75%, which is comparable to most of the actively managed funds covered here. The fund also has about $70 million under management, as well as a 10-day trading average of 65,000 shares, which places it at the bottom of the list. However, passively managed ETFs track a benchmark. That means their holdings are more transparent, and some investors prefer that. THCX is the fund Innovation Labs launched to track its index, called the Innovation Labs Cannabis Index. This index consists of international businesses in legal cannabis, hemp and cannabidiol, or CBD-based, products, including companies such as Canopy Growth Corp. (CGC), Tilray Inc. (TLRY) and even Scotts Miracle-Gro Co. (SMG).
Best marijuana ETFs to buy in 2022:
— AdvisorShares Pure U.S. Cannabis ETF (MSOS)
— Global X Cannabis ETF (POTX)
— AdvisorShares Pure Cannabis ETF (YOLO)
— Amplify Seymour Cannabis ETF (CNBS)
— Cambria Cannabis ETF (TOKE)
— The Cannabis ETF (THCX)
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