Four years ago, the marijuana legalization movement was firmly underway. Cannabis, both medical and recreational, was on more state ballots than ever before. And though many of those referendums were ultimately rejected, some got the green light. And simply appearing on a ballot at all was a victory for the cannabis industry.
But investors who thought it was matter of “when” rather than “if” also had to concede that most of the marijuana stocks garnering attention at the time were more hype than substance.
It’s a problem that still lingers, albeit to a lesser degree. Yet, investors now largely agree that the marijuana movement isn’t going away.
It’s still a bit risky most investors to select their own names as marijuana plays, though.
Solution? Marijuana ETFs. Like any other fund, a marijuana ETFs offer wide diversification without watering down the potential upside of the bigger movement.
Here are 3 marijuana ETFs to consider.
Marijuana ETFs for Everyday Investors #1:
AdvisorShares Vice ETF (ACT)
That’s not necessarily a bad thing though. It’s wise to diversify in all sectors. And this ETF is a quick and easy way to diversify among so-called sin stocks with just one simple purchase.
Right now, only about 14% of the fund is made up of marijuana stocks, but as the AdvisorShares page explains, “the portfolio manager believes that an evolving landscape of select, U.S. federally legal cannabis-related companies across various formats provides upside potential that may lead to attractive growth opportunities.”
Marijuana ETFs for Everyday Investors #2:
ETFMG Alternative Harvest ETF (MJ)
The logistics are irrelevant though. What matters is that the Alternative Harvest ETF is 100% exposed to the legal cannabis business, offering access to equities that many U.S. investors would struggle to own. Although its second-biggest position, GW Pharmaceuticals PLC (NASDAQ:GWPH), is listed on a U.S. exchange, eight of its ten biggest holdings are Canadian-listed stocks.
It matters, as Canada has been considerably more liberal than the United States when it comes to cannabis.
Marijuana ETFs for Everyday Investors #3:
Horizons Marijuana Life Sciences Index ETF (HMLSF)
Last but not least, don’t let the OTC listing for the Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF) fool you. This is a legitimate exchange-traded fund. It’s just one that’s primarily built for and listed on Canadian stock exchanges. Horizons also offers it to U.S. investors as an over-the-counter vehicle, as an exchange listing in the United States is not only expensive, but a bureaucratic hassle.
The noteworthy nuances extend beyond that point, however. The fund’s managers have made a point of only investing in companies that derive most of their revenue from markets where cannabis is legal. That means it doesn’t face the legal uncertainty risk that many U.S. cannabis companies face.
Bonus feature: It’s an index fund, so there’s no discretionary biases getting in the way of its success. It’s a true play on marijuana, for better or for worse.
The Bottom Line on Marijuana ETFs
More marijuana ETFs are sure to be in the works , and for good reason. Investors would be wise to keep their eyes peeled for them. Even if no new marijuana mutual fund or ETFs ever materialize, however, this is still a business that even traditionally-minded investors will want to mull.
The medical marijuana market alone is expected to grow at an annual pace of more than 20% through 2022. Meanwhile, more U.S. states are giving the green light to recreational marijuana. The federal government continues to turn a blind eye to the movement too, and in some regards has finally proactively sought to protect individual states’ rights to make their own marijuana laws. And looking beyond the United States — and into Canada — BDS Analytics believes the legal cannabis industry in North America will swell from 2017’s $9.2 billion to a market size of $47.3 billion by 2027.
That’s good news for all three of the aforementioned marijuana ETFs
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.