[Editor’s note: This is a rewrite and update of a previous article, “4 Best Marijuana ETFs for Conservative Portfolios,” which was previously published in November 2019. ]
Investors are clamoring for ways to get in on the popular, but risky, marijuana-investing craze. A quick online search yields 11,000 monthly queries for marijuana ETFs as investing in the marijuana realm grows in popularity. According to Seaport Global Securities, the $12 billion cannabis market is expected to balloon to $630 billion by 2040.
Despite the reality that cannabis is illegal in the U.S. under federal law, more than half of the states have legalized marijuana to some degree. With the cannabis craze exploding, new marijuana ETFs continue to launch. There’s even a fund based upon a marijuana index.
Presently, there are approximately seven U.S.-equity marijuana ETFs. The cannabis ETF group typically excludes mom-and-pop operations and includes pharmaceutical and biotech firms researching cannabinoid usage. Other marijuana funds target supporting players in the marijuana industry, such as fertilizer producers or alcohol and tobacco firms seeking to diversify.
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. Here are some of the best:
Alternative Harvest ETF (MJ)
Expense Ratio: 0.75%
The Alternative Harvest ETF (NYSEARCA:MJ) began trading on Dec. 26, 2017. This is the largest marijuana ETF, with $743.71 million in assets under management. MJ levies a 0.75% expense ratio with a 5.43% 12-month yield.
The fund is based upon the Prime Alternative Harvest Index, a recently created benchmark that seeks to track the global cannabis industry along with companies positioned to benefit from the growing marijuana investment trend. You might call it a marijuana index.
This marijuana ETF tracks cannabis cultivators, producers and distributors, along with cannabinoid drug makers, fertilizer producers and tobacco companies.
As the first of what is sure to be many U.S. marijuana ETFs, the Alternative Harvest enjoys a first-mover advantage.
The Cannabis ETF (THCX)
Expense Ratio: 0.7%
The fund, like its competitors, was created to open the cannabis investment market to average investors by investing in stocks poised to benefit from this growing industry.
The fund concentrates its holdings in the U.S., with a small percentage devoted to Britain and Canada. The majority of the fund’s companies hail from the pharmaceuticals and biotech industries.
The expense ratio, including a 0.25% fee waiver, is 0.7% — similar to the bulk of the cannabis investment funds.
Cambria Cannabis ETF (TOKE)
Expense Ratio: 0.42%
Cambria Cannabis ETF (BATS:TOKE) also launched in July 2019 and is among the smallest of Marijuana ETFs with around $9 million net assets. TOKE distinguishes itself by investing in various-sized companies, from micro- to mid-capitalization firms. Cambria invests in firms that earn a majority of revenue from the legal sale, cultivation, production or provision of cannabis-related products, services or research.
Small in nature, this concentrated cannabis ETF targets 20 to 50 companies. The net expense ratio of 0.42% is lower than the two previous marijuana funds in this article.
The Cambria Cannabis ETF is allocated among four countries, with 61.7% invested in Canadian companies, 27.1% companies domiciled in the U.S., 9.7% from Britain and the remaining holdings from Australia.
In addition to the popular Aurora Cannabis and Canopy Growth, TOKE’s top holdings also include Aphria (NYSE:APHA), Constellation Brands (NYSE:STZ), GW Pharmaceuticals, MediPharm Labs Corp (OTCMKTS:MEDIF) and British American Tobacco (NYSE:BTI).
AdvisorShares Pure Cannabis ETF (YOLO)
Expense Ratio: 0.74%
The AdvisorShares Pure Cannabis ETF (NYSEARCA:YOLO) cannabis ETF is an actively managed investment fund, not a marijuana index ETF. The fund targets firms across multiple cannabis-related industries, including agriculture, biotechnology, pharmaceutical, real estate, retail, finance and other medical applications.
As the second-largest cannabis fund, YOLO has around $40 million in assets under management and an 0.74% expense ratio.
The fund owns distinct companies from the former ETFs and offers dedicated cannabis exposure as well as consumer product companies. YOLO’s top holdings include Village Farms International (NASDAQ:VFF), Innovative Industrial Properties (NYSE:IIPR), Trulieve Cannabis (OTCMKTS:TCNNF), GW Pharmaceuticals and OrganicGram Holdings (NASDAQ:OGI).
Create Your Own Cannabis Investment Fund
Diversification is key when investing in a speculative sphere like marijuana ETFs. You might want to dip your toes in the above funds but also add in some popular cannabis-related stocks to round out your pot portfolio.
M1 Finance and Robinhood both allow you to create your own mutual funds with zero commissions. You can choose the investments, purchase your preferred amount and voila, you have your own marijuana ETF, comprised of both funds and individual stocks!
Top marijuana stocks include Canopy Growth, Aphria and GW Pharmaceuticals. Peripherally related pot stocks include Scotts Miracle-Gro or Constellation Brands.
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. While that can be exciting, 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.