The idea of marijuana exchange traded funds (ETFs) is undoubtedly intoxicating, no pun intended. However, just one dedicated marijuana ETF trades in the U.S. You read that right. The world’s largest ETF market — by a wide margin — only has a single dedicated marijuana ETF.
The lack of U.S.-listed marijuana ETFs belies the already well-documented opportunity set with cannabis stocks. For example, the U.S. Marijuana Index has more than tripled since the start of 2016. Home to 17 stocks with a total market capitalization of $6.27 billion, that index “tracks the leading cannabis stocks operating in the United States. Constituents must have a business strategy focused on the marijuana or hemp industry, and are required to meet our minimum trading criteria,” according to the issuer.
While the idea of marijuana ETFs is likely enticing to issuers, there are risks. Most notably, cannabis is still illegal at the federal level, which introduces a slew of concerns regarding federal banking regulations. Custodian banks are essential elements in the ETF ecosystem and holding marijuana stocks could put them in jeopardy with federal regulators.
So for the moment, investors probably should not expect new cannabis ETFs in the U.S. over the near-term. In the meantime, investors can use the following 3 funds for cannabis exposure.
3 Marijuana ETFs With Potential to Harvest: ETFMG Alternative Harvest ETF (MJ)
Expense ratio: 0.75% per year, or $75 on $10,000 investment.
ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is the undisputed king of U.S.-listed marijuana. But as I noted earlier, this king presides over a small court.
MJ was converted to a cannabis ETF late last year, explaining how it avoided some of the aforementioned thorny regulatory issues associated with weed ETFs.
Home to 38 stocks, MJ has nearly $369 million in assets under management, underscoring the point that there is appetite for cannabis ETFs. MJ also reminds investors that cannabis stocks can be volatile as this fund currently resides more than 26% below its 52-week high.
MJ is a global ETF, reflecting that not many U.S. marijuana stocks trade on major exchanges, liked the Nasdaq or New York Stock Exchange. Nearly 62% of the fund’s components are Canadian companies, about triple the amount of its U.S. exposure. The U.K. and Australia combine for 9.5% of MJ’s roster. Overall, this cannabis fund represents 10 countries, all of which are developed markets.
Over two-thirds of MJ’s holdings are pharmaceuticals companies and nearly 15% are tobacco companies. MJ’s top 10 holdings combine for over 47% of its weight.
3 Marijuana ETFs With Potential to Harvest: AdvisorShares Vice ETF (ACT)
Expense ratio: 0.75% per year, or $75 on $10,000 investment.
The AdvisorShares Vice ETF (NASDAQ:ACT) is an actively managed fund that debuted in December. As its name implies, ACT is not a dedicated pot ETF, but the fund does featured ample cannabis exposure.
ACT can be viewed as a “sin stock” ETF as its major industry weights are 53% to alcohol, 26% to tobacco and 21% to cannabis as of the end of February. With its heavy exposure to alcohol and tobacco names, ACT is home to an array of familiar stocks, such as Constellation Brands, Inc. (NYSE:STZ), Altria Group Inc (NYSE:MO), Phillip Morris International Inc. (NYSE:PM) and the Boston Beer Company Inc (NYSE:SAM).
“ACT only invests in cannabis-related companies conducting federally legal business per the United States government,” according to the issuer.
The issue for ACT in 2018 has been its consumer staples exposure. Alcohol and tobacco stocks dwell in that sector and the group has been a dud. Thus far, S&P 500 Consumer Staples Index has been hit with a double-digit year-to-date loss.
3 Marijuana ETFs With Potential to Harvest: First Trust Nasdaq Pharmaceuticals ETF (FTXH)
Expense ratio: 0.60% annually, or $60 on a $10,000 position.
This is the area where the “stretch” for marijuana ETFs comes into play. With the dearth of marijuana ETFs on the market today, interested in the cannabis theme may want to consider funds with indirect exposure. The First Trust Nasdaq Pharmaceuticals ETF (NASDAQ:FTXH) is a smart beta idea to consider as a conservative cannabis play.
FTXH makes this list because of all the ETFs that feature exposure to shares of AbbVie Inc (NYSE:ABBV), the First Trust offering has the largest weight to that stock. AbbVie is FTXH’s fourth-largest holding at a weight of 6.55%. That is relevant because AbbVie’s Marinol is a cannabis-related drug that has actually been approved for medicinal use by the Food & Drug Administration (FDA).
That drug is used to treat AIDS patients experiencing loss of appetite and/or weight loss as well as nausea and vomiting in patients undergoing chemotherapy.
Todd Shriber does not own any of the aforementioned securities.
