Investing in marijuana companies continues to be a long-term bet.
U.S.-based companies that grow pot or manufacture cannabis products (or otherwise “touch the plant,” as industry jargon goes) can’t access the traditional banking system without filing gobs of extra paperwork, can’t take certain tax deductions and credits that traditional businesses enjoy, and can’t list on the big U.S. stock exchanges.
But an increasing number of people in the nation think that recreational marijuana use should be legal at the federal level, rather than sanctioned in a state-level patchwork. According to a survey conducted during the fourth quarter by cannabis data company BDSA, 56% of adults think recreational use should be legal, up from 51% during spring 2022.
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The growing acceptance of cannabis among Americans may ultimately prompt the federal government to legalize the drug. Still, investors aren’t holding their breath for that to happen anytime soon.
Executives at cannabis hedge fund Poseidon Investment Management are not expecting any meaningful legislation from the current Congress or administration.
“Companies need to continue optimizing their cost structures, prudently allocating capital and pursuing profitable growth, as the industry does not know when capital markets will change or when federal movement will happen,” says Morgan Paxhia, Poseidon co-founder and portfolio manager of the AdvisorShares Poseidon Dynamic Cannabis ETF (ticker: PSDN).
Poseidon’s ETF, or exchange-traded fund, is one of several that offer one-stop shops for investing in multiple cannabis companies under a single ticker. In risky industries like the one for legal marijuana, diversification can reduce risk, which is one reason cannabis-focused ETFs have proliferated.
Here’s a look at seven of the top marijuana ETFs:
| Marijuana ETF | Assets under management | Expense ratio |
| AdvisorShares Pure US Cannabis ETF (MSOS) | $331 million | 0.80% |
| ETFMG U.S. Alternative Harvest ETF (MJUS) | $124 million | 0.75% |
| ETFMG Alternative Harvest ETF (MJ) | $227 million | 0.75% |
| AdvisorShares Pure Cannabis ETF (YOLO) | $36 million | 0.88% |
| Global X Cannabis ETF (POTX) | $35 million | 0.51% |
| Amplify Seymour Cannabis ETF (CNBS) | $25 million | 0.75% |
| AXS Cannabis ETF (THCX) | $16 million | 0.75% |
[Read: Best Marijuana Stocks to Buy.]
AdvisorShares Pure US Cannabis ETF (MSOS)
MSOS is the most popular marijuana ETF listed on U.S. exchanges, and the actively managed fund has more than $330 million in assets under management.
MSOS doesn’t hold stocks directly. Rather, the ETF opts for synthetic exposure via total return swaps, which are derivatives contracts where a party exchanges cash collateral with another for the returns of an asset.
MSOS uses swaps because federal and custodial banks restrict ETFs from investing in U.S. cannabis companies directly. The ETF has an expense ratio of 0.8%.
Although Canadian stocks will get the most institutional support because cannabis is federally legal there, U.S.-based companies are involved in the world’s biggest marijuana market and will benefit the most from banking reform or any positive federal movement on cannabis, says Michael Sassano, CEO of medical cannabis compound manufacturer Somai Pharmaceuticals Ltd.
ETFMG U.S. Alternative Harvest ETF (MJUS)
Here’s another U.S.-focused, actively managed cannabis ETF. This fund invests at least 80% of its assets in securities of companies that derive at least 50% of their net revenue from the cannabis business in the U.S.
That can include multistate operators, or MSOs, directly involved in the cultivation, production, marketing and distribution of cannabis or cannabis-related products.
MJUS has more than $124 million in assets under management and an expense ratio of 0.75%.
ETFMG Alternative Harvest ETF (MJ)
Those who disagree with Sassano’s assessment of international marijuana ETFs can consider this globally focused fund, which is passively managed against the Prime Alternative Harvest Index that tracks companies benefiting from medicinal and recreational marijuana legalization initiatives.
Jason Wilson, cannabis research and banking expert at ETF Managers Group, or ETFMG, expects international cannabis sales to increase.
He sees Germany as a hot spot for international growth as the nation, which is Europe’s largest economy, moves forward with recreational legalization. Meanwhile, Canada, as a mature market, will likely see lower growth, he says.
With $227 million in assets under management, or AUM, this fund is the second-biggest cannabis ETF after MSOS. That popularity can help boost liquidity, which means investors can buy and sell shares more easily.
MJ has an expense ratio of 0.75%.
[READ: ETF vs Mutual Fund: How to Choose for Your Investing Strategy]
AdvisorShares Pure Cannabis ETF (YOLO)
As the globally diversified version of MSOS, actively managed YOLO has holdings from Canada, the U.K. and Israel. It holds some stocks outright but also uses swaps, and it holds part of its allocation in MSOS, which is focused on the U.S.
This fund is on the smaller side, with $36 million in AUM. It has a 0.88% expense ratio.
Global X Cannabis ETF (POTX)
With about $35 million in AUM, this fund is about the same size as YOLO. But unlike YOLO, this fund is passively managed, tracking the Cannabis Index.
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, as well as pharmaceutical companies that produce cannabis extracts, derivatives or synthetics.
The fund has an expense ratio of 0.51%.
Amplify Seymour Cannabis ETF (CNBS)
Like MSOS, actively managed CNBS uses swaps to circumvent restrictions against ETFs holding U.S. plant-touching marijuana stocks. CNBS has about $25 million in AUM and an expense ratio of 0.75%.
“In terms of market dynamics, the cannabis industry is expected to continue its growth trajectory, with the global legal cannabis market projected to reach almost $100 billion by 2026,” says Marc Beginin, founder and CEO of Prodigy Processing Solutions, a supplier of cannabis extraction equipment and post-processing technology.
AXS Cannabis ETF (THCX)
Actively managed THCX offers a pure-play marijuana fund by avoiding allocations to alcohol and tobacco companies that only dabble in the cannabis industry.
The fund has about $16 million in AUM and an expense ratio of 0.75%. This low level of assets can limit liquidity for investors. But its holdings include some popular marijuana stocks, including Tilray Brands Inc. (TLRY), Cronos Group Inc. (CRON) and OrganiGram Holdings Inc. (OGI).
“As far as investing in the cannabis sector, I believe it is a good time to proceed cautiously into the space,” Beginin says.
“There are many strong years of growth on the horizon but, as (with) any investment, success is dependent not only on the industry as a whole but the fundamentals of the businesses one considers investing in,” Beginin says. “It would be wise to only invest on a case-by-case basis and conduct abundant and advanced due diligence before putting your money at risk.”
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7 Best Marijuana ETFs to Buy in 2023 originally appeared on usnews.com
Update 05/18/23: This story was previously published at an earlier date and has been updated with new information.
