Image source

Introduction

In this article we discuss the marijuana (cannabis) industry and the 9 cannabis ETFs that are available. Whether you decide to invest in one, or not, is up to you but the detailed analysis provided should help you make any decision with your eyes wide open.

Legal Barriers

While marijuana may be legal for recreational or medical purposes in around 40 U.S. states, it continues to be illegal under federal law. This poses a barrier for legitimate cannabis companies looking to access financial services, resulting in them relying primarily on cash transactions, making them targets of criminal activity.

The Senate Banking Committee's bipartisan vote last September supported the Secure and Fair Enforcement Regulation Banking Act, also referred to as SAFER Banking Act, which offers protection to banks that provide financial services to legal cannabis firms.

There is still doubt regarding the progress of the SAFER Banking Act on Capitol Hill, however, and its intended aims may be addressed through alternative means. Reclassifying cannabis under the Controlled Substances Act, possibly as a Schedule 3 substance following the Department of Health and Human Services' suggestion, could mark a significant step forward. Energy in the cannabis industry could revive following the forecasted progress in 2024, bringing in investors and providing debt refinancing and equity-raising opportunities, which could potentially save struggling firms.

Growth and Expansion

• According to BDSA:
  1. U.S. cannabis sales are expected to reach $46 billion in 2026, a CAGR of approximately 14% from 2021, as the result of technological and product developments, new legal markets and a faster growth rate in adult-use sales.
  2. Canadian cannabis sales are projected to reach nearly $6.3 billion by 2026, a CAGR of 11% from 2021. 
  3. International cannabis sales are expected to reach $9.5 billion by 2026, a CAGR of approximately 46% from 2021. The bulk of that new spending will be driven by Germany and Mexico, though France and the U.K. will contribute significantly as well.
  4. Global cannabis industry is projected to reach $61.8 billion in 2026, a compound annual growth rate (CAGR) of more than 16% from 2021.

The Sector's 9 Cannabis ETFs

With the delisting of a number of cannabis ETFs already this year there are now only 9 cannabis ETFs currently trading. They are listed below, in descending order, as to:

• their assets under management (AUM),
• whether or not they are actively managed,
• the number of constituents in each ETF
• and, most importantly, the extent to which they provide exposure to:
  • LPs - Canadian licensed producers growing, processing, packaging and distributing cannabis products
  • MSOs - American multi-state operators
  • ancillary companies that provide goods and services to the pure-play LP and MSO companies, derive less than 50% of their revenue from the cannabis sector or are major investors in the sector.

1. AdvisorShares Pure US Cannabis ETF (MSOS): $1.1B in Assets Under Management (AUM) 
   • actively managed
   • 20 constituents
     • 100% are American MSOs
       • 7 large stocks (92%)
       • 13 much smaller stocks (8%).
2. Amplify Alternative Harvest ETF (MJ): AUM: $274M 
   • passively managed
   • 30 constituents
     • 43% of the assets are in American MSOs (14) as included in the MJUS ETF (see below)
     • 29% of the assets are in 23 ancillary companies
     • 28% of the assets are in 6 Canadian LPs.
3. Amplify U.S. Alternative Harvest ETF (MJUS): AUM: $126M
   • actively managed
   • 22 constituents
     • 89% of assets are in American MSOs
       • 14 of the constituents are American MSOs (89%)
       • 8 are ancillary companies (11%)
4. AdvisorShares Msos 2x Daily ETF (MSOX): AUM: $97M 
   • an actively managed, leveraged portfolio that invests in swap agreements linked to the MSOS ETF (see above).
5. Horizons Marijuana Life Sciences Index ETF (HMMJ-U): AUM: $77M
   • passively managed
   • 10 constituents
     • 40% of assets are in 4 Canadian LPs
     • 60% of assets are in 6 ancillary companies
6. AdvisorShares Pure Cannabis ETF (YOLO): AUM: $52M 
   • actively managed
   • 20 constituents
     • 45.5% of the assets are in American MSO stocks (20) via the MSOS ETF
     • 31.5% of the assets are in 14 ancillary companies
     • 18.5% of the assets are in 5 Canadian LPs
     •  4.5% is currently held in cash.
7. Amplify Seymour Cannabis ETF (CNBS): AUM: $38M
   • actively managed
   • 31 constituents
     • 54.8% of the top 10 assets are in 6 American MSOs
     • 4.2% of the top 10 are in 2 Canadian LPs
     • 10.5% of the top 10 are in 2 ancillary industries
     • 20.5% of the assets are in the remaining 21 stocks
8. Cambria Cannabis ETF (TOKE): AUM $10M
   • actively managed
   • 34 constituents
     • 57.5% of assets in are 19 ancillary companies
     • 22.5% of assets are in 7 American MSOs
     • 16.0% of assets are in 5 Canadian LPs
     • 4% in 3 currencies
9. Roundhill Cannabis ETF (WEED): AUM: $6.6M  
   • actively managed
   • 5 constituents
     • 100% are American MSOs
       • consist of 5 of the 6 largest MSOs

Why There Is NO Comparison Between The Above 9 Cannabis ETFs - NONE

You will note from the above analyses that no mention is made of the weekly or monthly returns of the ETFs or their management expense ratios because, frankly, using such numbers for comparison purposes is meaningless. Why? Because the 9 ETFs are very much a mixed bag with different management styles (active or passive), number of constituents (ranging from just 5 to 34), areas of concentration (MSOs, LPs and ancillaries), and size of assets under management, Yes, the ETFs are all marijuana ETFs but that is the extent of it.

How To Invest in Cannabis Stocks

• If you are still interested in investing in a cannabis ETF, however, it is important to identify what category you want to concentrate on and choose accordingly.
  • If you are primarily interested in American MSOs then check out #1, #4 (leveraged) and #9 further. If you are just interested in tracking the MSO sector then make sure you follow the performances of the 7 largest MSOs here in my weekly posts on TalkMarkets.
  • None of the above 9 ETFs are very good vehicles for investing in Canadian LPs. You might want to track the LP sector by following the performances of the 5 largest LPs here in weekly posts on TalkMarkets.

Conclusion

Which ETF you decide to invest in - or not - is up to you but the detailed analysis above should help you make your decision with your eyes wide open.

More By This Author:

AI Sector Stalling: Only 4 Of 7 Categories Went Up In March
March Recap: Largest Psychedelic Drug Stocks Up Another 5%
March Recap: Small Cap AI Stocks Down 17%