Exchange Traded Funds (ETF) are publicly traded mutual investment funds. They differ from traditional mutual funds in that their shares can be bought and sold just like shares of publicly held companies. An ETF portfolio can include stocks, bonds and assets.
By participating in an ETF, investment risk is reduced because the fund’s assets are much more diversified than those of a typical company. Cannabis ETFs emerged as a practical possibility to easily diversify investments and reduce the natural risk of the stock market.
The premier gathering of cannabis entrepreneurs and investors in North America, the Benzinga Cannabis Capital Conference, which is returning for a 2-Day Hybrid Event on October 14-15 in New York City, will present a unique opportunity to learn more about cannabis ETFs as well as the perspectives of the CEOs behind these alternatives for investing in cannabis.
Although there exist numerous cannabis-focused ETFs, in this article we will focus on the largest ones – those ETFs participating in Benzinga’s CCC 2021.
ETFMG Alternative Harvest ETF
Alternative Harvest ETF (NYSE:MJ), launched in December 2017 by ETF Managers Group (ETFMG) was the first cannabis ETF to be listed on a US Stock Exchange.
MJ is the most liquid ETF on the market. Its assets total more than $1 billion, making it larger than all other cannabis ETFs combined. It was designed to measure the performance of cannabis companies whose growth is associated with the progress of global legalization.
“This differentiated approach recognizes the fact that the cannabis industry is intertwined with many industries, and that many companies outside the cannabis industry ecosystem are likely to benefit from the continued move to legalization worldwide,” said Jason Wilson, director of MJ.
As a principle criteria, MJ invests in companies that generate most of their income from the cultivation of cannabis, or its derived products. The fund also invests in cannabis companies that offer services adjacent to cultivation and that are expected to benefit from the global growth of the industry.
In May, ETFMG launched the US Alternative Harvest ETF (NYSE:MJUS) followed by the ETFMG 2x Daily Alternative Harvest ETF (NYSE:MJXL), in July.
MJUS was designed to seek daily leveraged exposure of 2x to the performance of its Prime Alternative Harvest benchmark index. While MJ is focused on global companies, MJUS gives investors a way to back cannabis companies operating in the U.S., including multi-state operators (MSOs) directly involved in the cultivation, production, marketing and distribution of cannabis or cannabis-related products.
AdvisorShares Pure Cannabis ETF: YOLO and MSOS
AdvisorShares Pure Cannabis ETF (NYSE:YOLO) was launched in April 2019 and was the first active cannabis ETF in the United States. Unlike MJ, YOLO is not based on an index, but rather selects stocks individually.
“We hand-select cannabis-related companies that we believe offer the best opportunities for price appreciation,” said Dan S. Ahrens, Managing Director and COO of AdvisorShares Pure Cannabis ETF YOLO.
AdvisorShares looks exclusively for companies whose income sources, at least 50%, emanate from cannabis while avoiding those firms whose main income is from tobacco, alcohol, fertilizer or lighting for cultivation.
Ahrens has said that he views ETFs as a good investment tool for any investor. “People need to realize that large institutional investors are among the biggest users of ETFs. ETFs are very good for retail investors as a way to get a diversified basket of cannabis stocks,” he noted.
“As an active fund, we obviously attempt to select the best ones. Far too many individual investors in cannabis stocks are actually among the most heavily traded, but among the worst performers. ETFs can also engage in institutional securities lending to create income and can trade ETF creation and redemption baskets for greater tax efficiency as compared to individual investors,” Ahrens added.
Last year, in September, AdvisorShares launched the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) which focuses on multi-state operators, or MSOs.
Jason Wilson and Dan Ahrens will part-take in the Benzinga Cannabis Capital Conference being held in New York on October 14-15. Tickets are still available to secure your spot at the conference. for both in-person and virtual gatherings of cannabis entrepreneurs and investors from around the world.
Photo courtesy of Giorgio Trovato at Unsplash