One of the draws of exchange-traded funds is that they provide multiple stocks under one ticker symbol, giving investors instant diversification.
But that doesn’t really help when an entire industry is performing abysmally and many stocks have lost considerable value, as the case has been with the cannabis industry in recent years.
The New Cannabis Ventures Global Cannabis Stock Index is down more than 90% in the past five years as investors have fled the industry because of oversupply, competition from the illegal market, poor management and U.S. federal indecision about legality.
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With performance like that, it’s no wonder cannabis ETFs are shutting down. The AdvisorShares Poseidon Dynamic Cannabis ETF ceased trading last year. This year has seen the demise of the AXS Cannabis ETF and the Global X Cannabis ETF. The Horizons US Marijuana Index ETF will close on March 28.
“The issue with a cannabis ETF is that they generally have a very select few companies in their portfolio worth investing in and the rest just drag it down,” says Avis Bulbulyan, CEO of cannabis holding company SIVA Enterprises. “Because they only have a select few that are worth investing in, you would probably outperform the ETF by investing directly in those select few companies.”
Still, there may be silver linings for the industry this year, offering tantalizing hope to investors who have been disappointed multiple times. The U.S. Drug Enforcement Administration is considering rescheduling the drug. Lawmakers are mulling a bill that would remove marijuana from the Controlled Substances Act altogether. Legislators continue to work on banking reform.
Also, cannabis research firm BDSA expects U.S. marijuana sales to grow 10% this year to $32.4 billion and reach $46 billion in 2028.
In addition, Senate minority leader and marijuana opponent Mitch McConnell recently announced that he will step down from his position and help select a replacement in November.
“Senator McConnell has certainly had an enormous and far-reaching impact as a staunch cannabis opponent in his record-long leadership position, where he has continuously stonewalled several responsible legalization and banking efforts,” says Shawn Hauser, partner with cannabis law firm Vicente LLP. “Although his legalization of hemp has ironically had a vast impact on opening cannabis markets and consumer access.”
Despite the dismal industry performance in recent years, there are some marijuana ETFs that continue to hang on, perhaps providing bargains for investors who are willing to take substantial risks and who plan to hold them for a long time. In fact, several of these top seven marijuana ETFs are outperforming the year-to-date return of the S&P 500:
| Marijuana ETF | Expense Ratio | YTD return as of March 7 |
| AdvisorShares Pure US Cannabis ETF (ticker: MSOS) | 0.83% | 10.6% |
| Amplify Alternative Harvest ETF (MJ) | 0.78% | -1.5% |
| Amplify U.S. Alternative Harvest ETF (MJUS) | 0.75% | 8.7% |
| AdvisorShares MSOS 2x Daily ETF (MSOX) | 1.13% | 10.5% |
| AdvisorShares Pure Cannabis ETF (YOLO) | 1.03% | 9.3% |
| Amplify Seymour Cannabis ETF (CNBS) | 0.77% | 5.9% |
| Cambria Cannabis ETF (TOKE) | 0.42% | -3.3% |
AdvisorShares Pure US Cannabis ETF (MSOS)
Morgan Paxhia, managing director of cannabis hedge fund Poseidon Investment Management, is no stranger to the vicissitudes of the marijuana market.
After seeing his company’s ETF shut down last year, he sees two potential tracks for the U.S. market in 2024. On the one hand, it could be another year of no federal progress on rescheduling, leaving the status quo of piecemeal state-by-state growth and a lack of capital flowing into the industry. In this scenario, some companies will continue executing their plans well, while others will continue to head toward going out of business.
In the second scenario, the DEA will come through with at least an initial ruling on rescheduling the drug in a way that would open up lucrative tax deductions and credits enjoyed by federally legal businesses. That would give state-legal marijuana businesses a chance to compete with the illicit market, and access to capital would improve. Intoxicating hemp-derived products could also boost sales.
If track one prevails, Paxhia says, only MSOS, the biggest of the cannabis ETFs, will survive while others perish. “There’s no flows into anybody, really,” he says.
Track two offers more promise. If that scenario materializes, he expects other ETFs to stick around and see more inflows and “price appreciation across the board” as a new capital and liquidity cycle starts for the industry and institutional investors become more involved.
“We go from a backyard pool to an Olympic-size pool,” he says.
MSOS’ assets under management recently stood at $916 million. It has gained 10.6% so far in 2024 as of March 7, outperforming the S&P 500’s 8.1% rise. It has an expense ratio of 0.83%, meaning investors will pay $83 in annual fees on a $10,000 investment.
Amplify Alternative Harvest ETF (MJ)
Amplify is the second-biggest cannabis ETF based on assets under management. It is globally focused and is passively managed against the Prime Alternative Harvest Index that tracks companies benefiting from medicinal and recreational marijuana legalization initiatives.
“Regulators around the world are changing their tune and addressing cannabis policies commensurate with global standards,” says Michael Sassano, CEO of medical cannabis compound manufacturer Somai Pharmaceuticals Ltd. “More and more countries will be opening access to cannabis globally.”
MJ’s assets under management recently stood at $229.5 million, and its shares have lost 1.5% year to date as of March 7. It has an expense ratio of 0.78%.
Amplify U.S. Alternative Harvest ETF (MJUS)
This actively managed cannabis ETF 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.
Sassano likes the fund because it is leveraged, which can exaggerate up moves. The risk, of course, is that it can also magnify down moves.
He’s positive on the U.S. industry because of a recent Department of Health and Human Services report in which the regulatory agency recommended rescheduling, citing therapeutic uses and that abuse effects are less harmful than other controlled substances.
MJUS’ net assets recently stood at $113 million. It has gained 8.7% so far this year as of March 7, and it has an expense ratio of 0.75%.
AdvisorShares MSOS 2x Daily ETF (MSOX)
This fund, which is the fourth-largest cannabis ETF, also uses leverage to magnify the volatility of its holdings — making both up and down moves bigger.
MSOX offers these magnified returns by investing in swap agreements on AdvisorShares Pure US Cannabis ETF, allowing investors to gain more exposure to cannabis holdings for less cash.
But the fund tracks the levered performance of MSOS for only one day. That means the compounding of daily returns can result in substantially different returns, including losses, for those who hold the fund for more than one day.
MSOX’s assets under management recently stood at $74 million. It has gained 10.5% this year as of March 7. It has an expense ratio of 1.13%.
AdvisorShares Pure Cannabis ETF (YOLO)
If such a short-term, risky strategy isn’t for you, AdvisorShares steers people to MSOS or this 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.
YOLO’s assets under management recently stood at $46 million, ranking it the No. 5 cannabis ETF based on assets. It has gained 9.3% this year as of March 7. YOLO has an expense ratio of 1.03%.
Amplify Seymour Cannabis ETF (CNBS)
Like MSOS, actively managed CNBS uses swaps to circumvent restrictions against ETFs holding U.S. plant-touching marijuana stocks.
The fund invests at least 80% in stocks of companies that derive at least half of their revenue from cannabis or hemp.
Investments include companies involved in pharma/biotech, cultivation and retail, hemp, or cannabis-infused products. They also include support companies in agricultural tech, real estate and commercial services. The ETF’s ancillary investments are involved in making consumption devices, providing insurance and financing services, or are media companies.
CNBS’ assets under management recently stood at $31 million. It has gained 5.9% so far this year as of March 7, and it has an expense ratio of 0.77%.
Cambria Cannabis ETF (TOKE)
This ETF is the smallest on this list in terms of assets, at a little over $9 million, and it’s also the cheapest one on this list.
The fund is a global, all-cap ETF that targets about 20 to 50 of the top cannabis companies around the globe. It says it is a low-cost option among cannabis ETFs that don’t use leverage.
TOKE has lost 3.3% in 2024 as of March 7. It has an expense ratio of 0.42%.
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7 Best Marijuana ETFs to Buy in 2024 originally appeared on usnews.com
Update 03/08/24: This story was published at an earlier date and has been updated with new information.
