Marijuana ETFs: Which One Is Right For You?

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Should investors invest in one of the 18 marijuana ETFs currently available and, if so, which one(s)? This article, unlike any other article you have read on the subject, provides some much-needed insights.

Determining which marijuana ETF to buy based on its price performance compared to its peers is like comparing apples to oranges to peaches to pears. They may all be fruits and grow on trees but they all taste different and so it is with marijuana ETFs.

It doesn't matter if they are:

  • actively or passively managed,
  • have a large or small number of constituents,
  • have major or miner distributions,
  • have large or small management expense ratios or
  • have a better stock performance record than their peers.

What matters is the make-up of the constituents in the ETF and, specifically, what percentage of the constituent stocks are:

  • vertically integrated pure-play Canadian Licensed Producers (LPs),
  • "seed-to-sale" American Multi-State Operators (MSOs),
  • clinical-stage pharmaceutical companies researching and developing new applications
  • established pharmaceutical companies already marketing current ones,
  • companies heavily invested in marijuana companies
  • or companies providing a variety of goods and services to the industry's LPs and MSOs (i.e. ancillary companies).

The above being said, let's take a focused look at the 18 marijuana ETFs in play.

  • Six (6) of the ETFs consist primarily of cannabis-related constituents and, as such, in my estimation, are nothing more than wannabe cannabis ETFs.
  • Four (4) are leveraged (inverse or bull) ETFs.
  • Only 8 marijuana ETFs have over 50% of their holdings in vertically integrated (seed-to-sale) marijuana companies and, therefore, truly reflect the growth or decline in the health of the marijuana sector.

The 8 are as follows with the percentage of vertically-integrated company holdings divided between Canadian (Cdn) LPs and American (US) MSOs:

  1. Purpose Marijuana Opportunities ETF (MJJ): 95% (100% US)
  2. Pure US Cannabis ETF (MSOS): 90% (100% US)
  3. Roundhill Cannabis ETF (WEED): 81% (80% US; 20% Cdn)
  4. Horizons US Marijuana Index ETF (HMUS): 78% (100% US)
  5. Amplify Seymour Cannabis ETF (CNBS): 66% (78% US; 22% Cdn)
  6. Global X Cannabis ETF (POTX): 57% (31% US; 69% Cdn)
  7. AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN): 54% (100% US) 
  8. The Cannabis ETF (THCX): 53% (72% US; 28% Cdn)

Based on the above data, if you are exclusively interested in investing in a basket of American MSOs you might want to seriously consider #1, #2 or #4 and perhaps #3. If you are primarily interested in a basket of Canadian LPs then #6 is worth considering. If you are interested in both Canadian and American cannabis companies consider #3, #5, #6, and #8. 

The 4 leveraged marijuana ETFs mentioned above are as follow:

  1. ETFMG 2x Daily Inverse Alternative Harvest ETF (MJIN)
  2. ETFMG 2x Daily Bull Alternative Harvest ETF (MJXL)
  3. BetaPro 2x Inverse Canadian Marijuana Companies ETF (HMJI)
  4. Horizons 2x Bull Marijuana companies ETF (HMJU)

The 6 ETFs that are primarily invested in cannabis-related companies are listed below with the degree of such concentration:

  1.  ETFMG U.S. Alternative Harvest ETF (MJUS): 98%
  2. Cambria Cannabis ETF (TOKE): 76%
  3. ETFMG Alternate Harvest ETF (MJ): 72%
  4. Horizons Marijuana Life Sciences Index (HMLSF): 64%
  5. AdvisorShares Pure Cannabis ETF (YOLO): 57%
  6. AdvisorShares VICE ETF (VICE): 14%

There you have it! Which ETF you decide to invest in is up to you but the detailed analysis above should help you get invested in the burgeoning marijuana sector with your eyes wide open.

More By This Author:

The 13 Largest American Cannabis MSOs: A Financial Assessment
The 5 Largest Canadian Cannabis LPs: A Financial Assessment
The 8 Largest Psychedelic Compounds-Based Drug Stocks: A Financial Assessment

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