With the evolving regulations and political uncertainty regarding global marijuana legalization, there are inherent market risks involved when investing in the cannabis industry. Furthermore, investing too heavily in any one cannabis stock can also expose investors to larger firm-specific risks in addition to those market risks.
Exchange-traded funds, or ETFs, are similar to mutual funds in that they bundle together securities into one portfolio to offer investors a diversified portfolio. ETFs, however, typically have lower operating costs (since they are exchange-traded rather than actively managed), trade throughout the day and track a particular index. There are a number of ETFs that track marijuana indices and can help diversify your cannabis portfolio to cushion the hit if any one stock takes a fall. Investing in a marijuana ETF can also capitalize on overall marijuana industry growth for less upfront money and risk. Here’s the five marijuana ETFs currently available to add to your portfolio.
ETFMG Alternative Harvest ETF
ETFMG Alternative Harvest ETF (NYSEArca:MJ) is the only U.S.-based ETF available on the market at this time. While the ETF has been mostly on the decline this year, 5.24 percent of the ETF’s weight is with Canopy Growth Corporation (TSX:WEED)(NYSE:CGC), which is good news for investors following the recent $4 billion investment by Constellation Brands (NYSE:STZ) into Canopy. Since the August 15 Constellation Brands investment, the ETF has surged up more than 34 percent at the time of this writing.
With the anticipation of more beverage companies looking to move into the marijuana industry, this ETF has been seeing strong share price appreciation recently, with the potential for this trend to continue. At the front lines of the current movement, Smirnoff maker Diageo (NYSE:DEO) is closely tracking possible marijuana producers to join into a partnership, including Aphria Inc. (TSX:APH)(OTC:APHQF), Tilray Inc. (NASDAQ:TLRY) and Cronos Group Inc (NASDAQ:CRON) as their main targets. If they choose Cronos, this would be a huge win for this ETF seeing as 5.36 percent of MJ’s assets are in Cronos stock.
Below are the top 10 holdings of MJ:
Horizons Marijuana Life Sciences Index ETF
The Horizons Marijuana Life Sciences Index ETF (TSX:HMLSF) is the largest ETF offered on the market now and seeks to replicate the returns of the North American Medical Marijuana Index, an index that generally includes companies located in Canada (74 percent of the fund), the United States (16 percent) and Great Britain (10 percent). It mainly includes stock from companies that focus on medicinal uses of marijuana.
Concerns over the future of Canadian ETFs were expressed Monday in a Bloomberg article stating that Canada is “swimming in ETFs” with significantly more ETFs per capita than in the United States. Amongst the commenters in the article was Horizons ETF’s head of sales strategy, Mark Noble, and he stated that the slowdown in asset growth is “creating a difficult environment for new entrants.” However, the main concern is over small ETFs (less than CAD$1 billion) and Horizon is currently Canada’s fourth largest with CAD$10.3 billion under management.
Below are the top holdings of the HMLSF as of August 23, 2018:
Horizons Emerging Marijuana Growers Index ETF
Horizons Emerging Marijuana Growers Index ETF (NEO:HMJR) seeks to replicate the performance of the Emerging Marijuana Growers Index. As compared to the other Horizons ETF, this ETF’s holdings mainly include small-cap companies. On its website, it states that the fund tries to “gain exposure to the rapidly growing marijuana industry” since the legal marijuana market is expected to reach $24.5 billion in sales by 2021. The fund focuses on the small-cap companies because they have the most significant upside growth potential.
Here are the ETFs top holdings as of August 23, 2018:
Redwoods Marijuana Opportunities Fund
Redwoods Marijuana Opportunities Fund (TSX:MJJ) is the first actively-managed marijuana ETF and began trading February 1, 2018. The fund is managed by Greg Taylor at Redwood Asset Management and he says he’s mostly interested in stocks that aren’t held by the other passive marijuana ETFs mentioned earlier in the article.
Here are the top fund holdings:
The Evolve Marijuana ETF
The Evolve Marijuana ETF (TSX:SEED) is another actively-managed cannabis ETF with 94 percent of its holdings in Canadian companies and 6 percent in Australian companies. They state on their website that SEED is a fund for investors that are “willing to accept a high degree of risk.” Similar to Redwoods, the fund launched in February 2018 and invests in companies with business activities in both the recreational and medical marijuana industry.
Here are the top holdings of SEED: