Cannabis ETFs Soar on Republican-Led Legalization Bill

Cannabis ETFs, which have been on a difficult run this year, gained momentum lately following the reports of a Republican-led bill, which is seeking to legalize marijuana at the federal level in the United States.

The funds outperformed the market last week with Global X Cannabis ETF POTX leading the rally, climbing 17.4%. AdvisorShares Pure US Cannabis ETF MSOS, AdvisorShares Pure Cannabis ETF YOLO, Amplify Seymour Cannabis ETF CNBS and ETFMG Alternative Harvest ETF MJ gained 14%, 12.8%, 10.9% and 10.9%, respectively (see: all the Marijuana ETFs here).  

South Carolina House Representative Nancy Mace has drafted a bill, as reported by Marijuana Moment, that would deschedule cannabis federally. Removing cannabis from Schedule I of the Controlled Substances Act would legalize it in the United States. According to Marijuana Moment’s reporting, the bill would legalize cannabis without changing any of the existing state-level markets or regulations. It would legalize and regulate marijuana in a manner similar to how alcohol is regulated, and will institute a federal tax of 3.75% on cannabis, which would be levied on top of any state taxes.

Though the bill is not being formally introduced in Congress, it could be a game changer for the industry, aiming to take cannabis market worldwide sales to $51 billion by 2025. This optimism has driven the ETFs higher.

Let’s delve into each of the ETFs in detail below:

Global X Cannabis ETF

Global X Cannabis ETF seeks to invest in companies across the cannabis industry. This includes companies involved in the legal production, growth and distribution of cannabis and industrial hemp, as well as those involved in providing financial services to the cannabis industry, pharmaceutical applications of cannabis, cannabidiol, or other related uses including extracts, derivatives or synthetic versions. Global X Cannabis ETF tracks the Cannabis Index and holds 26 stocks in its basket. The higher concentration of POTX is on the top five firms (read: Wave of Solid Q3 Earnings Push Pharma ETFs Higher).

In terms of country exposure, Canada takes the largest share at 77.9% followed by 20.2% in the United States. Global X Cannabis ETF has accumulated $123 million in its asset base and trades in an average daily volume of 142,000 shares. Expense ratio of POTX comes in at 0.51%.

AdvisorShares Pure US Cannabis ETF

AdvisorShares Pure US Cannabis ETF is the first actively managed U.S.-listed ETF with dedicated cannabis exposure focusing exclusively on U.S. companies, including multi-state operators. MSOS holds 27 securities in its basket with a double-digit concentration on the top two firms. AdvisorShares Pure US Cannabis ETF is highly skewed toward MSOS in terms of sector, making up for 86.5% of the portfolio.   

MSOS has amassed $1 billion in its asset base while trades in an average daily volume of more than a million shares. AdvisorShares Pure US Cannabis ETF charges 74 bps in annual fees.

AdvisorShares Pure Cannabis ETF

AdvisorShares Pure Cannabis ETF is also the actively managed ETF with a dedicated cannabis investment mandate domiciled in the United States. YOLO seeks long-term capital appreciation by investing in both domestic and foreign cannabis equity securities. AdvisorShares Pure Cannabis ETF holds a basket of 32 stocks with a double-digit exposure to the top three firms. American firms making up for 61.4% of the portfolio, followed by 28.7% share in the Canadian firms.

AdvisorShares Pure Cannabis ETF has gathered $246.9 million in its asset base and charges 75 bps in annual fees. YOLO trades in an average daily volume of 104,000 shares.

Amplify Seymour Cannabis ETF

Amplify Seymour Cannabis ETF is an actively managed fund which invests at least 80% of its assets in securities of companies with 50% or more of their revenues from the cannabis and hemp ecosystem. CNBS holds 34 securities in its basket with each making up for not more than 8.3% of assets. Amplify Seymour Cannabis ETF provides 48.5% exposure to American firms and 47.4% to Canadian firms (read: 5 Top-Ranked ETFs Outperforming to Start November).

Cultivation and retail is the top industry in the CNBS basket at 31.7% while investing & finance, agricultural technology and real estate round off the next three spots with double-digit exposure each. With AUM of $109 million, Amplify Seymour Cannabis ETF charges 75 bps in annual fees and trades in an average daily volume of 64,000 shares.

ETFMG Alternative Harvest ETF

ETFMG Alternative Harvest ETF is the first and world’s largest ETF focusing on the global cannabis/marijuana industry. MJ tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem, benefiting from global medicinal and recreational cannabis legalization initiatives. ETFMG Alternative Harvest ETF holds 35 securities in its basket with a moderate concentration across top firms.

American firms account for 46.4% of the MJ portfolio while Canadian firms make up for 40.2% share. ETFMG Alternative Harvest ETF has AUM of $1.1 billion and trades in a solid volume of around 1.2 million shares. It charges 75 basis points in annual fees.

What Lies Ahead?

Given the rising number of countries decriminalizing and legalization, cannabis stocks are set to soar. According to Technavio Research Reports, the legal cannabis market is expected to grow at a record CAGR of 21.39% from 2021 to 2025.

With 10 newly legalized states slated to begin selling cannabis in 2021 or 2022, the legal market is projected to pull in $43 billion by 2025, per the new study by top cannabis market researcher New Frontier Data. The researcher cited a surge in legal market spending as well as the conversion of existing illicit market consumer spending to legal regulated sources as reasons for the increase in consumer demand.

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ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
AdvisorShares Pure Cannabis ETF (YOLO): ETF Research Reports
Amplify Seymour Cannabis ETF (CNBS): ETF Research Reports
Global X Cannabis ETF (POTX): ETF Research Reports
AdvisorShares Pure US Cannabis ETF (MSOS): ETF Research Reports
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