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Cannabis ETF (MSOS) On a High, Reaches $1B AUM Milestone

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The AdvisorShares Pure US Cannabis ETF (MSOS - Free Report) has been surging in popularity with its assets growing more than 40,000% in just six months. This is especially true, as the fund debuted last September with $2.5 million in assets and has now crossed the $1 billion milestone. With its growing popularity, the ETF has more than doubled since its inception and gained 34.1% this year.

Given the incredible success, it is worth shedding light on some of the key aspects of the fund and the marijuana industry.

Only U.S. Dedicated ETF: A Big Attraction

MSOS is the only dedicated ETF focusing on the American cannabis companies, including multi-state operators (MSOs). Notably, MSOs are U.S. companies directly involved in the legal production and distribution of cannabis in states where it is approved. As such, this ETF seems an appropriate pick to tap the growing wave of cannabis legalization in America. The U.S. legal cannabis market is projected to witness a CAGR of 21%, to more than $41 billion by 2025 from $13.2 billion in 2019 (read: 5 Best ETF Investing Ideas for 2021).

Components and Characteristics

The fund holds 30 securities in its basket with a heavy concentration on the top four holdings, which account for a double-digit exposure each. However, mid-cap securities make up for the largest share of 63.1% in the portfolio followed by small and micro caps (30%), while the large caps account for the rest. The inclusion of mid-cap stocks makes MSOS more popular.

This is because these middle-of-the-road securities simultaneously allow growth like small caps and stability like large caps in portfolios. Additionally, these have relatively less exposure to the international markets compared to large caps, thereby making them good bets in the current market turmoil. Further, mid-cap stocks are less volatile than the small caps. Thus, these stocks are currently safer options and have a higher upside potential (read: 5 Best Sector ETFs of February).

Low Trading Cost

Liquidity seems not at all a concern as the ETF trades in a solid average daily volume of 1 million shares, suggesting no additional cost in the form of bid/ask spread beyond the expense ratio of 0.74%.

Wave of Legalization

The popularity came on the wave of wider legalization as well as the growing adoption of marijuana in more states. In particular, Virginia lawmakers last weekend approved the legalization of recreational use of marijuana by 2024. With this, it becomes the 16th state and the first in the South to legalize recreational adult-use marijuana. Five states — New Jersey, Arizona, South Dakota, Montana and Mississippi — also legalized marijuana through ballot measures last year.

Meanwhile, the Biden government has the friendliest political environment for the cannabis industries in U.S. history, as it will expedite the legalization of marijuana at the federal level.

Other Factors

The deal activities and robust earnings from companies such as Tilray (TLRY - Free Report) have strengthened the bullish case for the marijuana stocks. Further, these have been boosted by social media traffic and the Reddit trading boards’ frenzy (read: Marijuana ETFs on a High on Reddit Frenzy).

According to one source, the cannabis market was at $22.9 billion in 2020 and is projected to see a CAGR of 18.1% in the forecast period (2021-2026).

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