Thanks to a spate of recent launches, the once sparsely populated universe of marijuana ETFs is growing. Entering this year, the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) was the only game in town among dedicated marijuana ETFs with the AdvisorShares Vice ETF (NASDAQ:ACT) providing some, but not dedicated cannabis exposure.
Amid an increasingly favorable regulatory environment and what issuers perceived to be pent up demand, five pure play marijuana ETFs have come to market this year with the third quarter having been brisk on that front with four cannabis funds launching during that period.
So now we’re up to six marijuana ETFs trading in the U.S. From the standpoint of choice being good for investors (it is), the marijuana ETF market in the U.S. is healthy. The problem is the returns have been sickly.
The aforementioned MJ, the oldest and largest cannabis ETF, has shed more than half its value over the past year and resides more than 56% below its 52-week high. The following anecdote drives home the point about the recent, rapid erosion in weed funds’ prices: MJ was once a $1.1 billion fund. Today, all six of the marijuana ETFs trading in New York combine for less than $820 million in assets.
Still, the potential remains for cannabis stocks to rise again, particularly if, as some analysts expect, 2020 acts as a year of separating the group’s strongest members from its weakest links. For the daring, here are three of the best marijuana ETFs to consider right now.
Best Marijuana ETFs to Consider: Cambria Cannabis ETF (TOKE)
Expense Ratio: 0.42%, or $42 annually per $10,000 invested
The Cambria Cannabis ETF (CBOE:TOKE) merits a place on this list for a couple of reasons, not the least of which is that its 0.42% annual fee makes it the cheapest marijuana ETF on the market today. Second, TOKE is actively managed, giving the management team at Cambria some leeway in terms of avoiding the worst marijuana stocks, hunting for value and maybe owning some U.S. cannabis names at some point.
No, those traits have not made TOKE immune to the tumble in cannabis equities since the fund came to market as highlighted by its nearly 31% slide since its late July debut.
TOKE “will target investing in approximately 20 to 50 of the top companies with exposure to the broad cannabis industry based on Cambria’s determination as to their exposure to the industry,” according to Cambria.
TOKE could also be the marijuana ETF for investors looking for exposure to smaller stocks because the managers say they will explicitly target mid-, small- and even micro-cap names.
The Cannabis ETF (THCX)
Expense Ratio: 0.70%
The aptly named and tickered Cannabis ETF (NYSEARCA:THCX) debuted in July and was the third marijuana ETF to list in the U.S. At that time, THCX’s selling points included a low fee relative to established competitors and cannabis industry purity.
THCX holds 37 stocks, most of which dwell at the smaller end of small-cap territory as highlighted by a median market value of $372.4 million. This marijuana ETF’s top 10 holdings combine for about 61% of its weight and include familiar names such as Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC) and HEXO Corp (NYSE:HEXO).
THCX tracks the Innovation Labs Cannabis Index, meaning the fund is passively managed, but it does rebalance on a monthly balance, which is frequently compared to traditional index funds. As such, some of the components in this marijuana ETF are only found in this fund, not competing ETFs.
Global X Cannabis ETF (POTX)
Expense Ratio: 0.50%
Just about a month old, the Global X Cannabis ETF (NASDAQ:POTX) is the newest addition the U.S. marijuana ETF fray. In other words, by no fault of its own, its time has been bad and the jury is still out on the fund. Of course, those sentiments are applicable to practically all of the marijuana ETFs that have debuted this year. POTX tracks the Cannabis Index.
One bright spot with POTX is that, depending on what valuation metrics are used in evaluating the new marijuana ETF, the fund is attractively valued. For example, the fund has a price-to-sales-growth ratio of 0.26x, below the 0.32x found on the S&P 500.
As is the case with its marijuana ETF brethren, POTX is levered to market growth and favorable legislation trends.
“As these efforts show signs of continuing across the US and around the world, additional regulated markets could enter the fray, bringing billions of dollars of potential revenue with them,” said Global X in a research note. “In 2019 alone, global sales of legal cannabis are expected to reach $14.9 billion, rising 36% year-over-year, but still representing less than 9% of the total market.”
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.