5 Marijuana ETFs for Investing in Cannabis
We’ve been on one of those kind of trips recently. You know the kind: Strapped into the memory time machine, revisiting the past to make sense of the present to think about the future. Old friends growing older but not out of date—others past their expiration date—as we wound our way around the good U.S. of A, in a stuttering old green Subaru wagon, before arriving home for a while. Deep isht like that, which is to say that we’re in the right frame of mind to talk about investing in cannabis. After all, who knew that a journey that started more than a half-century ago to smoke weed and chill to music would morph into a billion-dollar industry with Snoop Dogg being both a venture capitalist and the name of an Indica hybrid called Snoop Dogg OG. Specifically, we’re talking about investing in marijuana ETFs.
That subject first came up last April when the world’s first marijuana ETF, Horizons Medical Marijuana Life Sciences ETF (TSE:HMMJ), premiered on the Toronto Stock Exchange in April. We provided you a step-by-step, screenshot-by-screenshot, guide on how to invest in an Exchange Traded Fund (ETF) on a foreign stock exchange. An ETF, as you’ll recall, is simply a basket of stocks that you can buy and sell just like you would a single stock. It provides instant diversification within an industry or theme like cannabis.
HMMJ has done quite well over the last year, returning an impressive +113%, as of June 12, versus about +14% for the S&P 500 Index, as you can see above, even after an extensive rebalancing, adding 10 new Canadian stocks earlier this year. The fund now has about $810 million in assets under management, and many of the stocks that comprise it, got a bit of a bump this month when the Canadian Senate finally approved the so-called Cannabis Act, moving full legalization nationwide closer to reality. While there are still some things to iron out, it appears that Canada will soon become the second country where weed is totally legal. That’s a big relief to grow companies like Canopy Growth Corp., which have been ramping up in anticipation of the Canadian weed industry catching fire.
Five Marijuana ETFs for Investing
They say imitation is the greatest form of flattery, but it’s also a great way to profit off of others’ success. So we’re not surprised to find that there are at least five marijuana ETFs out there now including HMMJ, which is by far still the largest, as measured by Assets Under Management (AUM):
|Fund Name||Ticker Symbol||Exchange||AUM||Management Fee||No. of Holdings|
|Horizon Medical Marijuana Life Sciences ETF||HMMJ||TSE||$810M||0.75%||39|
|ETFMG Alternative Harvest ETF||MJ||NYSE||$388M||0.75%||39|
|Evolve Marijuana ETC||SEED||TSX||$4.564M||0.75%||21|
|Purpose Marijuana Opportunities Fund||MJJ||Aquitas NEO||$13.4M||0.75%||25|
|Horizons Emerging Marijuana Growers Index ETF||HMJR||Aquitas NEO||$12.4M||0.85%||26|
(As of June 15, 2018)
A few immediate things to note about this list. Both MJJ and HMJR are traded on something called Aequitas NEO, a new Canadian stock exchange based in Toronto that came online about three years ago, with a current value of about $850 million CAD (or $645 million USD). For comparison, the Toronto Stock Exchange, where HMMJ and SEED trade, has a market cap well north of $2 trillion CAD. So MJJ and HMJR are pretty small fish in a small pond—a pond we don’t know much about except that it’s named after a messiah-like character from the Matrix. You are the one, Neo.
Horizons Emerging Marijuana Growers Index ETF
Let’s start with Horizons Emerging Marijuana Growers Index ETF (NEO:HMJR). No doubt the folks at Horizons ETFs saw how well their first marijuana ETF was doing and figured two is better than one. HMJR is supposed to tap into small-cap companies involved in the cultivation, production and/or distribution of marijuana, with market caps falling into a sweet spot between $50 million and $500 million.
The top-ten stocks in its portfolio diverge somewhat from HMMJ, with several new additions and others that are much more heavily weighted in this new ETF. Overall, nearly 47 percent of its entire portfolio is different from HMMJ. Its biggest position is in a Canadian stock called TerrAscend (CNSX:TER), which we briefly profiled earlier this year as one of 10 new stocks added to the Horizons Medical Marijuana Life Sciences ETF. TerrAscend’s stock has also experienced some crazy volatility and now has a market cap of more than $437 million. The company seems to be trying to ramp up its business rapidly, as it just got licenses to sell dried cannabis and to produce cannabis oils. It has about $45 million in cash on hand to make it all happen.
The second company on the list, MPX Bioceutical Corporation (CNSX:MPX), is not included in HMMJ. It is also a Canadian company but with all of its current operations (seven dispensaries, two live production facilities) in the United States. It is reportedly in the midst of building a 70,000-plus-square-foot production facility in Ontario with capacity to produce about 17,700 pounds per year of dried flower and 700 pounds of concentrate from byproduct trim. Sporting a market cap of about $355 million, the company just secured a $40 million loan to grow. At least one analysis says its extraction business may be the way forward to profitability.
Other stocks new to us featured in the top-ten of HMJR include:
- Cann Group (ASX:CAN): An Australian company that is licensed by the government to develop medical cannabis products. Last year, it also received the country’s first license to cultivate cannabis for medicinal use. Market cap: $313 million.
- Auscann (ASX:AC8): Another Australian outfit that was recently licensed to cultivate its own cannabis. Market cap: $187 million.
- Benchmark Botanics (CN:BBT). A publicly traded company out of Vancouver, Benchmark Botanics got into the cultivation business last October when it acquired Potanicals Green Growers and its 12,700-square-foot production facility. Market cap: $167 million.
Finally, we should note, it’s the costliest fund of the bunch, with a 0.85 percent management fee.
Purpose Marijuana Opportunities Fund ETF
The first thing you’ll notice about Purpose Marijuana Opportunities Fund ETF (NEO:MJJ) is that its highest percentage investment is in one of its other ETFs, a “high” interest savings ETF that currently yields a very underwhelming 1.4 percent (not including the fund’s 0.12 percent management fee). That’s a real turnoff, like when someone rolls a “European joint” and adulterates it with tobacco. And while the rest of the fund is invested in cannabis stocks, there’s not much in there to distinguish it from HMMJ or HMJR.
There is one interesting standout that falls outside the top ten, an American company called Green Thumb Industries (CNX:GTII) that started trading in Canada this month, with a market cap of about $132 million. Forbes just did an interesting comparison of GTI against another newly public cannabis company, MedMen (CSE:MMEN), which became the first billion-dollar marijuana unicorn earlier this year. While MedMen remains far more valuable, with a market cap north of $1.6 billion USD, GTI has enjoyed some early success out of the gate, gaining about 25 percent in its first short week of trading, according to Forbes. GTI is also making more money, with reported revenues more than 50 percent higher than MedMen, Forbes reported. Based in Chicago, GTI has seven manufacturing facilities and licenses for 50 retail locations across seven U.S. states.
The inclusion of GTI begs another question: Where’s the love for MedMen? Considering MedMen only went public at the end of May this year, we expect some of these ETFs to pick it up during their next rebalancing exercises. Sometimes, ETFs will require a stock to have some trading history (at least 90 days) before adding it.
Evolve Marijuana ETC
Evolve Marijuana, which has one of the cooler ticker symbols (TSX:SEED), shares at least one thing in common with the last two marijuana ETFs: All three were created in February. Just a fun fact. As you might expect, its portfolio is heavily invested in Canadian stocks—96 percent to be exact—with a token amount of Australian holdings. The top-ten holdings represent about 65 percent of its current weighting. We weren’t able to see into the rest of SEED’s 21 holdings, but it doesn’t seem to be doing anything much different than HMMJ or the other ETFs in this article, aside from how it slices and dices the limited number of public cannabis companies that are at least trading on non-OTC exchanges. It only has about $4.56 million in assets under management. Come back and talk to us when you’re old enough to smoke.
ETFMG Alternative Harvest ETF
And that brings us to our last marijuana ETF, ETFMG Alternative Harvest ETF (MJ), the first marijuana ETF to trade on a U.S. stock exchange. It has obviously generated a lot of excitement, because the fund has seen its assets under management grow to $388 million. Prior to December 26, 2017, the fund operated as the Tierra XP Latin America Real Estate ETF and had somewhere around $6 million in assets. Talk about jumping on the bandwagon.
Alternative Harvest also offers quite an alternative set of holdings once you work down through the first 15 or 20 of its 39 stocks. There are the usual suspects like Green Organic Dutchman, Canopy Growth Corporation and Cronos Group. And then there are names like Philip Morris and Japan Tobacco. That’s right: Tobacco in a marijuana ETF. WTF! Apparently, Alternative Harvest is trying to mix things up a bit, making this fund closer to a sin ETF than a pure-play marijuana ETF. It does offer more diversity geographically and by industry than some of the other ETFs here.
There was also some noise back in February—what the hell was everyone smoking in February?—that Alternative Harvest might lose its banking custodian, per Seeking Alpha. Apparently the shift from investing in companies selling plots in the Amazon rainforest to those selling weed made the bank a bit nervous. There’s been no further news about that development.
Conclusions on Marijuana ETFs
While having direct access to a U.S.-based marijuana ETF that appears to be on a runaway course to riches might be tempting to some retail investors, we would urge caution on betting on Alternative Harvest or any other marijuana ETFs at this point. For one thing, as Motley Fool pointed out, it appears that marijuana ETFs are large enough to stir the pot when it comes to pot stocks. In one case, the analyst calculated that about 40 percent of the trading volume in one of Alternative Harvest’s holdings could be attributed to the fund’s asset growth. An ETF should be following the market, not driving it. It’s like the tail wagging the dog, whatever the fcuk that means.