E "Marijuana" ETFs: The Great Pretenders

When you check out the constituent makeup of the publicly traded "marijuana" ETFs (listed below) you will notice that they include a large percentage of ancillary marijuana-related pharmaceutical, real estate, grower supplies, goods and services and tobacco/spirit companies. How can that be? Shouldn't the ETFs consist of baskets of actual marijuana stocks that reflect the performance of the industry?

Exchange-traded funds (ETFs) allow investors to buy a basket of stocks with a single investment, offering diversification and reducing risks. Of the 73 ETFs traded in the U.S. markets, 8 are cannabis focused and this article looks at what these supposedly "cannabis" ETFs consist of and 5 indices that track each of the 5 marijuana categories to enable you to make informed investment decisions.

Here's what is behind their subtle misdirection. In an attempt to put together a basket of stocks in the cannabis sector that will do well and, therefore, attract investors, most ETF managers have taken major liberties with the definition of a "marijuana" company.

  • Since when is a pharmaceutical company like GW Pharmaceuticals or Cara Therapeutics a marijuana company because it has products under development that have some cannabis in their formulation? 
  • Since when is a REIT a marijuana company? Sure, all its properties might be leasebacks of the facilities of marijuana cultivators but companies such as Innovative Industrial Properties are, first and foremost, real estate investment trusts (REITs) with all the advantages that such security entails. 
  • Since when is a fertilizer supply company (i.e. Scotts Miracle-Gro) that has a product that contains cannabis considered a marijuana company or a company that uses gardening supplies and hydroponic equipment (i.e. GrowGeneration)? 
  • Since when is a tobacco, liquor, or beer company a marijuana company just because it has invested in a marijuana company?
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Wendell Brown 2 weeks ago Member's comment

It doesn't seem to me that these ETF fund managers are misleading anyone, you just seem to think ETFs should be all pure-play or nothing.