The cannabis sector is a growing industry that could produce many winning stocks over the next few years. Canadian legalization and loosening US regulations are creating opportunities for investment on both sides of the border. As the industry expands, more investors are looking towards marijuana ETFs as the best way to profit on cannabis stocks.
There are dozens of cannabis stocks to choose from, and it can be hard to predict which will be long-term winners. Marijuana ETFs allow traders to invest in groups of hand-picked cannabis stocks, instead of concentrating everything into a few companies. Since ETFs trade just like stocks, marijuana ETFs are highly liquid and easy to acquire. Buying marijuana ETFs could be the best way to invest in the growing cannabis industry.
Best Marijuana ETFs: Our Top Picks
These marijuana ETFs hold a basket of some of the best up and coming cannabis stocks on the market. They could be the best way to play the sector.
ETFMG Alternative Harvest ETF (MJ)
ETFMG Alternative Harvest is the first ETF in the US that focused on cannabis. This ETF tracks several pot stocks around the world. The index consists of shares of companies involved in the legal cultivation, production, marketing or distribution of marijuana products. The products could be for medical or nonmedical purposes.
In addition to that, ETFMG Alternative Harvest also holds stocks of companies engaged in the trading or production of tobacco or tobacco products. Other companies include those manufacturing fertilizers, plant foods, pesticides, or growing equipment for cannabis or tobacco.
Furthermore, Alternative Harvest holds stocks of pharmaceutical companies that produce, market, or distribute drug products that use cannabinoids. It is worthy to note that the fund only owns shares of legitimate companies. Its top four holdings at the moment include Tilray, GW Pharmaceuticals PLC ADR, Cronos Group, and Canopy Growth.
The fund holds over $600 million in assets, and its expense ratio currently stands at 0.75%. In 2016 and 2017, the fund returned 19.33% and 38.97%, respectively. However, it was down 21.75% in 2018.
Alternative Harvest only invests in companies that get more than half of their earnings from the marijuana-related business. The fund holds over 30 stocks and it rebalances its holdings quarterly
Horizons Marijuana Life Sciences (HMLSF)
Horizons Marijuana Life Sciences is another ETF that mainly focuses on marijuana stocks. The buys stocks of companies that make most of their revenue from cannabis production, distribution or sale. The Index is designed to provide investors exposure to the performance of several North American publicly traded firms with significant business activities in the pot industry.
Horizons is a Canadian ETF provider that is headquartered in Toronto. Its family-oriented ETF is listed on the Toronto Stock Exchange. At the moment, the fund is not registered with the U.S. Securities and Exchange Commission and cannot be traded on any major US exchanges. However, the ETF is available to US investors on the OTC market.
In terms of the individual holdings, Horizons marijuana ETF has more than Alternative Harvest. Horizons marijuana ETF holds more than 50 stocks in its portfolio, which is higher than the Alternative Harvest’s 30. The fund focuses on companies that make more than 50% of their revenue from cannabis-related businesses.
Some of their holdings include the five top cannabis-cultivation stocks, pharmaceutical companies, and fertilizer stocks. The total assets under the Horizons Marijuana ETF stand at over CAD$428 million. Thus, making it one of the largest cannabis ETFs.
The Horizons ETF has become preferred by several investors due to its focus on companies with exposure to the medical cannabis sector. This is better than the Alternative Harvest’s portfolio, which holds some tobacco stocks.
The Cannabis ETF (THCX)
The Cannabis ETF was launched in July 2019. Over the past few months, it has raised over $17 million in assets. Similar to its competitors, the ETF was created to make it easy for average investors to venture into the cannabis market. It allows people to invest in cannabis stocks and benefit from the growing industry.
The Cannabis ETF concentrates its holdings in the United States. However, it has some assets in the UK and Canada. Most of the companies under this index are from the pharmaceuticals and biotech sector. At the moment, the fund’s most significant holdings are in Canopy, Cronos, GW Pharmaceuticals, Aurora Cannabis, and Scotts Miracle-Gro.
The expense ratio of 0.75% is similar to what is obtainable in other marijuana ETFs. The waiver fee of 0.25% is also what you can get in several cannabis investment funds.
The ETF was created to provide investment results that, prior to fees and expenses, have a net yield performance of the Innovation Labs Cannabis Index. The ETF invests roughly 80% of its net assets in the component securities of the index.
Under normal circumstances, the Cannabis ETF investors more than 80% of its total assets in addition to plus borrowings for investment purposes, in exchange-listed common stock (or corresponding American Depositary Receipts (“ADRs”) of marijuana companies.
What makes the Cannabis ETF unique is that it is non-diversified. The fund focuses on only cannabis-related companies and doesn’t invest in any other industry.
Cambria Cannabis ETF (TOKE)
This marijuana ETF launched in 2019. Currently, it has around $9 million in assets under management, so it’s one of the smallest cannabis ETFs around. The fund invests in the cannabis sector globally. Under normal circumstances, the fund invests at least 80% of its total assets into cannabis stocks.
The advisor invests in cannabis companies all over the world. However, they focus on the micro-, small-, and mid-capitalization stocks. This model of investment makes Cambria Cannabis a unique ETF. Similar to the others, Cambria only invests in companies that are legal and make most of their revenue from cannabis-related businesses.
While the fund is small in nature, it holds aims to hold roughly 20 to 50 stocks. The next expense here is 0.42%, which is lower than the usual 0.70% recorded by most marijuana ETFs. The small expense fees and investment rate makes it one of the cheapest ETF funds in the cannabis sector. The fund invests in cannabis stocks in four countries. Most of them are in Canada, while the others are in the US, the UK, and Australia.
Cambria Cannabis’s most substantial holdings are in Aphria, Constellation Brands, GW Pharmaceuticals, MediPharm Labs Corp, and British American Tobacco.
AdvisorShares Vice ETF (ACT)
Similar to the other ETFs, the AdvisorShares Vice ETF is an investment fund that seeks long-term capital appreciation. To qualify for this fund, companies must generate at least 50% of their revenues from cannabis. Its other holdings operate in the tobacco and alcoholic beverage industries. The fund also includes marijuana research and development companies.
The AdvisorShares Vice ETF was founded in 2019, and it primarily invests in US-listed equities. Its total assets under management total over $12 million, with an expense rate of 0.75%. Despite the poor performance of the cannabis sector this year, the returned 18% gains in 2019. This performance could indicate that this is a very well managed fund.
AdvisorShares Pure Cannabis ETF (YOLO)
AdvisorShares Pure Cannabis is the first actively managed marijuana ETF. The fund invests roughly 80% of its total assets in companies that earn more than 50% of their income from cannabis, hemp, and derivative products.
Unlike the other ETFs, the AdvisorShares Pure Cannabis doesn’t track any underlying index. Instead, it focuses on mid- and small-cap companies. The companies are mostly in the pharmaceutical, biotech, and life-science sectors.
This marijuana ETF invests in both domestic and international companies. Some of its overseas holdings include; CannTrust, OrganiGram Holdings Inc., and HEXO Corp.
With assets under management of over $40 million, it is one of the largest cannabis ETFs. The expense ratio of 0.74% is in line with the industry average. AdvisorShares Pure Cannabis is a unique ETF is that offers simultaneous exposure to cannabis and other consumer stocks.
Global X Cannabis ETF (POTX)
Global X Cannabis launched just last year, and the fund invests in companies from across the pot industry. The fund invests in companies involved in the production and distribution of cannabis, and it also invests in companies that provide financial services to the marijuana sector. Companies have to make at least 50% of their income from cannabis-related businesses to be considered.
The fund manages just over $4 million in net assets, so it’s one of the smallest cannabis ETFs on the market. However, the expense ratio of 0.5% is somewhat lower than the 0.7% industry average.
The top holdings of this fund include Hexo Corp, Aphria Inc., Canopy Growth Inc., Cronos Group Inc., Aurora Cannabis Inc., and more.
Understanding the Marijuana Sector
The marijuana sector is very diverse. It includes several types of companies involved with the cannabis plant. Producers grow marijuana and they’re often the most notable companies. Many marquee cannabis stocks, like Aurora, Canopy Growth, and Tilray, produce cannabis. However, there are lots of other ways to make money in the cannabis industry.
Some cannabis firms don’t grow cannabis, but they use it for other purposes. Investors refer to these companies as cannabis derivative firms. Usually, these companies hail from the pharmaceutical space.
The cannabis sector also supports an entire ancillary support industry. The support specialists provide services to cannabis growers and users. They are usually real estate and packaging companies that rent spaces and offer other services to the industry players.
Overall, the cannabis industry grew significantly over the past few years. It could continue expanding if cannabis becomes legalized in more US states.
Growth of the Marijuana Sector
Marijuana is still illegal at the federal level. However, the plant is somewhat legal in several states. 33 states in the US have legalized cannabis for medical use, and there are currently ten states with recreational use for adults.
The cannabis industry was worth $10.4 billion in 2018, and it’s expected to grow over the coming years. As the sector expands, there will be more investment opportunities available.
Marijuana ETFs: Closing Thoughts
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