Investors are clamoring for ways to get in on a popular, but risky, marijuana investing craze. Despite the reality that pot is illegal under federal law, many states have legalized the substance and plenty of marijuana ETFs have cropped up as a result.
For recreational use, Oregon, Massachusetts, California and a few more states allow marijuana use. Yet, the majority of U.S. states have medical marijuana legislation in the pipeline. Presently, with the legal disconnect between federal and state law regarding marijuana use, investing directly in U.S. marijuana ETFs and stocks is risky and replete with scams and fraud.
If you’re determined to get in on the marijuana investing scene, there are several conservative-ish marijuana ETFs for partaking in the speculative pot party:
Hot off the New York Stock Exchange, the Alternative Harvest ETF (NYSEARCA:MJ) began trading Dec. 26, 2017. Actually, ETF Managers Group (ETFMG) is remaking its existing Tierra XP Latin America Real Estate ETF (NYSEARCA:LARE) with an updated strategy.
Changing from an international real estate investment trust (REIT) fund, the new marijuana ETF will track cannabis cultivators, producers and distributors, along with cannabinoid drug makers, fertilizer producers and tobacco companies.
As the first of sure to be many U.S. marijuana ETFs, the Alternative Harvest could enjoy a first-mover advantage and capture the important growing cannabis investing market share.
It’s risky to call American Growth Funds Series Two Class E (MUTF:AMREX) a conservative marijuana pick. The fund, comprised of companies involved in the legal cannabis industry has a 5.75% load and dismal returns, with a 5-year annualized loss of -2.48% and year to date decline of 22%.
Yet, if you’re a contrarian seeking a fund with access to the cannabis industry through marijuana ETFs you might consider beaten down AMREX. For optimistic investors, the stock is trending upward during the first few weeks of December.
AMREX’s top holdings include some well-known names and other niche pot players including GW Pharmaceuticals PLC-ADR (NASDAQ:GWPH), Scotts Miracle-Gro Co (NYSE:SMG), Abbott Laboratories (NYSE:ABT), Cara Therapeutics Inc (NASDAQ:CARA), Cannabis Sativa Inc (OTCMKTS:CBDS) and more.
The fund is small and hasn’t gained serious investor traction. With a three-year beta of 0.53, this might be a good diversifier against the movements of the S&P 500.
Go north for another fund tapping into marijuana ETFs. Canadian Cronos Group Inc. (OTCMKTS:PRMCF), formerly known as PharmaCan Capital Corp., is an investment firm focused on investing in the medical marijuana industry.
Cronos’ investments abide by Canada’s Access to Cannabis for Medical Purposes Regulations (ACMPR). Founded in 2013 in Toronto, the fund targets Canadian firms and makes minority investments in cannabis-related firms.
Another small-cap firm with a $581 million market capitalization, the company owns a 21.5% stake in Whistler Medical Marijuana Company and smaller positions in companies such as Canopy Growth Corp. (OTCMKTS:TWMJF). PRMCF wholly owns these small marijuana growers; In the Zone Produce, Peace Naturals and Original BC.
Diversification is key when investing in a speculative sphere like marijuana ETFs. You might want to dip your toes in the above marijuana ETFs and add in some popular cannabis-related stocks to round out your pot portfolio.
M1 Finance and Motif both allow you to create your own mutual fund, for extremely low fees. You can choose the investments, purchase your preferred amount and voila, you have your own marijuana ETF, comprised of both funds and individual stocks!
In addition to the funds profiled above, consider adding several pure marijuana industry stocks and pot-related holdings. Top marijuana stocks include Canopy Growth, Aphria Inc (OTCMKTS:APHQF) and GW Pharmaceuticals. Peripherally related pot stocks include Scotts Miracle-Gro or Constellation Brands, Inc. (NYSE:STZ).
Investing in marijuana is risky. With the disconnect between state and federal marijuana laws, putting your money in this sector sets you up for a roller coaster ride. Tread cautiously into the pot investing fields.
Barbara A. Friedberg, MBA, MS is a veteran portfolio manager, expert investor, and former university finance instructor. She is editor/author of Personal Finance; An Encyclopedia of Modern Money Management and two additional money books. She is CEO of Robo-Advisor Pros.com, a robo-advisor review and information website. Additionally, Friedberg is publisher of the well-regarded investment website Barbara Friedberg Personal Finance.com. Follow her on twitter @barbfriedberg and @roboadvisorpros. As of this writing, she does not hold a position in any of the aforementioned securities.