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Cannabis On a Roll: Guide to ETF Investing

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Shares of cannabis-related stocks and ETFs continue to be in good shape after a solid run last year. Amplify Seymour Cannabis ETF (CNBS - Free Report) has come across as the best bet with 225.9% one-year returns and 65.9% year-to-date returns. The second-best performer has been AdvisorShares Pure Cannabis ETF (YOLO - Free Report) , which is up 200.8% in the past year and 35.5% year to date.

Helpedby favorable regulatory trends and growing public acceptance, the global cannabis market is estimated to reach $630 billion by 2040 from $12 billion today (per Seaport Global Securities report (February 21, 2019)),as quoted on

Below we highlight a few factors that have been acting as tailwinds for the sector.

Rationale Behind the Recent Rally

Biden Era

The regulatory backdrop holds the wild card for the industry’s well-being. It’s a Biden-friendly area. President Biden’s era in the United States will likely speed up the legalization of marijuana at the federal level, thereby providing a boost to the U.S. cannabis industry.

On Dec 4, the House passed a sweeping legislation to decriminalize marijuana and remove nonviolent marijuana-related convictions. Now, with the Senate too being ruled by Democrats, chances are high that marijuana could see a sweeping reform ahead.

Moreover, in early November, voters in Arizona, Montana, New Jersey and South Dakota voted in favor of the adult use of cannabis, bringing the total number of states that have cleared it for that purpose to 15.

COVID-19 Is a Positive

Sales have also been strong for marijuana amid the latest virus outbreak. There is a report that some strains of medical marijuana are proving effective to treat coronavirus. The report indicates that the medicinal marijuana could block up to 70% of the proteins used by the virus to infect cells. As a result, the entire cannabis sector held steady last year.

Amid widespread COVID-19-related lockdowns and store closures last year, many cannabis dispensaries received “essential business” designations, noted Global X. As a result, consumers had hoarded medicinal and recreational cannabis in the quarter, which resulted in better revenues for the pot companies.

Cannabis 2.0 in Canada

Canada legalized recreational use of marijuana on Oct 17, 2018. Since then, its cannabis industry has been on a tear as renowned beverage companies have been paying keen attention in it. So-called Cannabis 2.0 — legalization of marijuana derivatives including edibles, beverages, extracts and vape pens — also took effect in late 2019.

A Slew of Financing Deals

The pot industry is thriving on mergers and acquisitions too. The year 2020 was especially great with with more than $600 million in deals announced immediately after the November elections. Industry observers expect nearly $2 billion of deal activity in 2021. One of the key deals this year has been Jazz Pharmaceuticals’ (JAZZ - Free Report) announcementof buying cannabinoid drug companyGW Pharmaceuticals (GWPH) for $7.2 billion in cash and stock (read: Cannabis ETFs Spike on Jazz-GW Pharma Deal).

Against this backdrop, below we highlight a few cannabis ETFs that could be tapped in the coming days.

ETFMG Alternative Harvest ETF (MJ - Free Report)

The underlying Prime Alternative Harvest Index enables investors to take advantage of both event-driven news and long-term trends in the cannabis industry as well as the industries likely to be influenced by the medicinal and recreational cannabis legalization initiatives taking place in many locations globally. It charges 75 bps in fees.

AdvisorShares Pure US Cannabis ETF (MSOS - Free Report)

This ETF is active and does not track a benchmark. The fund looks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets in securities of companies that derive at least 50% of their net revenues from the marijuana and hemp business in the United States, and in derivatives that have economic characteristics similar to such securities. The fund charges 74 bps in fees.

AdvisorShares Pure Cannabis ETF (YOLO - Free Report)

This was the first actively managed ETF with a dedicated cannabis exposure available in the United States. The fund charges 75 bps in fees.

Global X Cannabis ETF (POTX - Free Report)

The underlying Cannabis Index provides exposure to exchange-listed companies that are active in the industry. It charges 51 bps in fees.

Cannabis ETF (THCX - Free Report)

The underlying Innovation Labs Cannabis Index is a proprietary, rules-based index designed to track the performance of a portfolio of cannabis companies. These companies are primarily located in the United States and Canada, but may be located in other countries as well.The fund charges 70 bps in fees (read: 4 Best Investing Areas of Q4 & Their Top ETFs).

Amplify Seymour Cannabis ETF (CNBS - Free Report)

This ETF is active and does not track a benchmark. The fund is managed by Tim Seymour, a known and experienced investor in the cannabis space. The fund charges 75 bps in fees.

Cambria Cannabis ETF (TOKE - Free Report)

This ETF is active and does not track a benchmark. The fund seeks capital appreciation from investments in the global equity markets that have exposure to the broad cannabis industry. It charges 42 bps in fees.

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