These seven cannabis ETFs are good options to play the budding industry.
The marijuana industry has yet to reclaim its glory days set during the 2018 bubble. During that time, legalization in Canada and decriminalization in various states sent investors into a frenzy, with the stocks of numerous newly listed cannabis manufacturers and retailers soaring to high valuations. Since then, the industry has stagnated, with many high-profile marijuana stocks like Canopy Growth Corp. (ticker: CGC) and Tilray Brands Inc. (TLRY) missing analyst expectations for revenue growth and earnings. Still, the prospect of federal legalization remains a potential catalyst on the horizon, especially after Senate Majority Leader Chuck Schumer introduced the Cannabis Administration and Opportunity Act to the Senate on July 21. The proposed bill would decriminalize marijuana at the federal level by removing it from the schedule of controlled substances. If you’re bullish on marijuana, consider using one of these seven exchange-traded funds, or ETFs, to bet on the industry.
Cambria Cannabis ETF (TOKE)
One thing you’ll notice with some marijuana ETFs is their colorful names, with TOKE being a prime example. TOKE is actively managed, meaning that it does not passively track a marijuana industry index. Instead, the fund manager actively picks 20 to 50 stocks based on their exposure to the cannabis industry using a proprietary quantitative methodology. However, unlike most marijuana ETFs, TOKE actually consists mostly of mid-cap stocks that aren’t pure-play cannabis companies. These include traditional tobacco manufacturers like British American Tobacco PLC (BTI), Philip Morris International Inc. (PM) and Altria Group Inc. (MO) that have pivoted to cannabis products and accessories. TOKE currently costs a net expense ratio of 0.42%, adjusted down by Cambria from 0.59%.
AdvisorShares Pure US Cannabis ETF (MSOS)
Investors looking to invest in U.S.-listed cannabis stocks can buy a portfolio of them via MSOS. MSOS is the most popular marijuana ETF listed on U.S. exchanges, boasting $653 million in assets under management. Fifty percent of the ETF is held in mid-cap companies, with 40% in small caps and 9% in microcaps. MSOS doesn’t hold stocks directly. Rather, the ETF opts for synthetic exposure via a total return swap. A swap is a derivative contract where a party exchanges cash collateral with another for the returns (positive or negative) of an asset, like a particular stock. MSOS uses swaps because federal and custodial banks restrict ETFs from investing in U.S. cannabis companies directly. The ETF has a net expense ratio of 0.73%.
AdvisorShares Pure Cannabis ETF (YOLO)
YOLO is the globally diversified version of MSOS, holding stocks from Canada (29%) and the U.K. (6.1%) as well. Compared to MSOS, YOLO also includes exposure to large-cap stocks, which currently make up 25% of the portfolio. The ETF gains exposure in a variety of ways, holding some stocks outright, using swaps for a few, and also holding a 37% allocation to MSOS to have an allocation to some of its U.S. holdings. In effect, the ETF can be thought of as MSOS plus a few additional U.K.- and Canadian-based cannabis stocks. Despite the global diversification, YOLO is less popular than its U.S.-only counterpart, with just $78 million in AUM. The ETF is also slightly more expensive, with a net expense ratio of 0.76%.
ETFMG Alternative Harvest ETF (MJ)
Compared to the other funds listed so far, MJ is passively managed, tracking the Prime Alternative Harvest Index. This index comprises globally listed cannabis companies that could benefit from medicinal and recreational marijuana legalization initiatives. Current top holdings include Tilray at 8%, Cronos Group Inc. (CRON) at 8%, and Canopy at 6%. The fund was one of the first to debut with an inception date of Dec. 3, 2015. However, after the collapse of the pot-stock bubble, the COVID-19 crash, and the rising interest rate environment of 2022, MJ has posted an average annualized return of minus 16.2% since inception. However, this hasn’t affected its popularity much, as the fund still has $432 million under management. The ETF charges a net expense ratio of 0.75%.
Amplify Seymour Cannabis ETF (CNBS)
CNBS has screening requirements to ensure that 80% of its holdings are companies that derive 50% or more of their revenues from cannabis and hemp products. This approach allows the fund manager to underweight or exclude tobacco or alcohol companies, making the ETF more representative of pure-play cannabis stocks. The ETF is actively managed, meaning the fund manager adjusts holdings on a daily basis as opposed to tracking an infrequently updated index. Like MSOS, CNBS also uses total return swaps to circumvent federal regulations against the holding of U.S. marijuana stocks by ETFs. The fund is fairly evenly split between U.S. (49%) and Canadian (41%) cannabis companies, with a small proportion (9%) in Irish ones. Notably, CNBS is comprised mostly of small-cap (55%) and microcap (36%) stocks, giving it higher risk and volatility. CNBS costs a net expense ratio of 0.75%.
The Cannabis ETF (THCX)
THCX offers a pure-play marijuana fund by avoiding allocations to alcohol and tobacco companies that only dabble in the cannabis industry. The fund is actively managed and highly concentrated, with just 26 holdings that are rebalanced on a monthly basis. Currently, the top three holdings include AFC Gamma Inc. (AFCG), Canopy Growth and Cronos Group. Interestingly, the ETF pays a high yield due to its securities lending income. This is interest income the ETF earns by lending some of its underlying stocks to its broker, which can then be borrowed by other parties looking to short sell the shares. The fund has a high management fee of 0.95%, but that has been waived until further notice to a net expense ratio of 0.75%.
Global X Cannabis ETF (POTX)
POTX is passively managed, tracking the performance of the Cannabis Index. This index comprises 23 holdings, with the majority from Canada (64%) and the U.S. (26%), with a small amount from Israeli and Australian markets. POTX doesn’t restrict itself to just producers and distributors of cannabis. The fund also holds companies that provide financial and operational support services to the cannabis industry, and also pharmaceutical companies that produce cannabis extracts, derivatives or synthetics. Current top holdings include Cronos Group at 10%, MyMD Pharmaceuticals Inc. (MYMD) at 8.5%, and OrganiGram Holdings Inc. (OGI) at 8%. Like many funds of this kind, POTX tends to be a bit more volatile than the overall market, so be aware of that before investing. POTX charges a lower expense ratio of 0.5%.
7 top marijuana ETFs to buy now:
— Cambria Cannabis ETF (TOKE)
— AdvisorShares Pure US Cannabis ETF (MSOS)
— AdvisorShares Pure Cannabis ETF (YOLO)
— ETFMG Alternative Harvest ETF (MJ)
— Amplify Seymour Cannabis ETF (CNBS)
— The Cannabis ETF (THCX)
— Global X Cannabis ETF (POTX)
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Update 08/18/22: This story was published at an earlier date and has been updated with new information.