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Cannabis ETFs Soar on Hopes of Federal Legalization
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Marijuana stocks have been surging following a proposal by the Drug Enforcement Agency (“DEA”) to reclassify cannabis as a substance with reduced risk, fueling anticipation of federal legalization. The news has spread huge optimism across the marijuana industry, with shares of several cannabis companies, including Canopy Growth, Tilray Brands and Cronos Group skyrocketing.
Investors looking to participate in the rally should bet on ETFs targeting the industry. Roundhill Cannabis ETF (WEED - Free Report) , AdvisorShares Pure US Cannabis ETF (MSOS - Free Report) , ETFMG U.S. Alternative Harvest ETF (MJUS - Free Report) , AdvisorShares Pure Cannabis ETF (YOLO - Free Report) and Amplify Seymour Cannabis ETF (CNBS - Free Report) have been leading the way higher over the past week and will likely continue to do so, at least in the near term or should legalization pave the way (see: all the Marijuana ETFs here).
The Reclassification
Per CNBC, since the 1970s, marijuana has been categorized as a Schedule I drug, placing it alongside substances like heroin and LSD, which are deemed to have no accepted medical use and a high potential for abuse. Despite growing scientific evidence supporting its medicinal benefits and its legalization in several state laws, marijuana remains in this stringent category, ranked even higher than substances like fentanyl, cocaine and methamphetamine. The DEA is now contemplating reclassifying marijuana as a Schedule III drug, aligning it with substances like ketamine and anabolic steroids, which are considered to have a moderate to low potential for dependence.
The recommendation for reclassification came from the U.S. Department of Health and Human Services (HHS). The final decision rests with the DEA, which will now commence its review.
A Booster for Marijuana
A federal reclassification could potentially expand the market for marijuana, which is a multibillion-dollar industry in the United States and a cash crop in many newly legalized states.
A Schedule III classification could ease the banking restrictions, allowing businesses to have more straightforward access to banking services and potentially attracting more investors. The reclassification could alleviate some of the tax burdens and help shift public perception, further legitimizing the medical cannabis industry and potentially paving the way for broader acceptance and use of marijuana as a therapeutic agent (read: SAFE Banking Act Resurgence Boosts Pot ETFs: A New Era Ahead?).
Additionally, a shift in the classification could provide momentum for more states to consider medical or recreational legalization, as it would signal a change in the federal government's stance on the drug's potential risks and benefits. Nearly 40 states in the United States have already legalized marijuana in various capacities.
Moving marijuana to Schedule III would provide clearer regulatory guidelines for businesses, potentially leading to more consistent product quality and safety standards across the industry.
Roundhill Cannabis ETF is designed to offer investors exposure to the cannabis sector. The fund may invest in various cannabis-related companies, including cannabis producers and distributors, cannabis-related technology companies, and additional cannabis-related ancillary businesses. It holds six stocks in its basket (read: 5 Top-Performing ETFs of Last Week).
Roundhill Cannabis ETF debuted in the space in April and has gathered $2.2 million in its asset base so far. It charges 39 bps in annual fees and trades in 6,000 shares a day on average.
AdvisorShares Pure US Cannabis ETF (MSOS - Free Report) – Up 40%
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). It holds 28 securities in its basket with a double-digit concentration on the top four firms. AdvisorShares Pure US Cannabis ETF is highly skewed toward MSOs in terms of sector, making up for 99.3% of the portfolio.
AdvisorShares Pure US Cannabis ETF has amassed $392.2 million in its asset base while trading in an average daily volume of $2.6 million shares. It charges 80 bps in annual fees.
ETFMG U.S. Alternative Harvest ETF (MJUS - Free Report) – Up 30.8%
ETFMG U.S. Alternative Harvest ETF is designed to provide investors exposure to cannabis companies operating in the United States, including MSOs directly involved in the cultivation, production, marketing and distribution of cannabis or cannabis-related products. It holds 23 stocks in its basket with a heavy concentration of the five firms.
ETFMG U.S. Alternative Harvest ETF has amassed $115.4 million in its asset base and charges 75 bps in annual fees. It trades in a volume of 79,000 shares a day.
AdvisorShares Pure Cannabis ETF (YOLO - Free Report) – Up 30.1%
AdvisorShares Pure Cannabis ETF is an actively managed fund with a dedicated cannabis investment mandate domiciled in the United States. YOLO seeks long-term capital appreciation by investing in domestic and foreign cannabis equity securities. AdvisorShares Pure Cannabis ETF holds a basket of 22 stocks, with American firms making up 70% of the portfolio, followed by a 24.1% share of Canadian firms.
AdvisorShares Pure Cannabis ETF has gathered $37.4 million in its asset base and charges 88 bps in annual fees. YOLO trades in an average daily volume of 43,000 shares.
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 no more than 12.4% of the assets. Amplify Seymour Cannabis ETF provides 76.8% exposure to American firms and 23.1% to Canadian firms.
MSOs is the top industry in the CNBS basket at 37%, while cultivation and retail makes up for 27% share. With AUM of $27.4 million, Amplify Seymour Cannabis ETF charges 75 bps in annual fees and trades in an average daily volume of 14,000 shares.
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Cannabis ETFs Soar on Hopes of Federal Legalization
Marijuana stocks have been surging following a proposal by the Drug Enforcement Agency (“DEA”) to reclassify cannabis as a substance with reduced risk, fueling anticipation of federal legalization. The news has spread huge optimism across the marijuana industry, with shares of several cannabis companies, including Canopy Growth, Tilray Brands and Cronos Group skyrocketing.
Investors looking to participate in the rally should bet on ETFs targeting the industry. Roundhill Cannabis ETF (WEED - Free Report) , AdvisorShares Pure US Cannabis ETF (MSOS - Free Report) , ETFMG U.S. Alternative Harvest ETF (MJUS - Free Report) , AdvisorShares Pure Cannabis ETF (YOLO - Free Report) and Amplify Seymour Cannabis ETF (CNBS - Free Report) have been leading the way higher over the past week and will likely continue to do so, at least in the near term or should legalization pave the way (see: all the Marijuana ETFs here).
The Reclassification
Per CNBC, since the 1970s, marijuana has been categorized as a Schedule I drug, placing it alongside substances like heroin and LSD, which are deemed to have no accepted medical use and a high potential for abuse. Despite growing scientific evidence supporting its medicinal benefits and its legalization in several state laws, marijuana remains in this stringent category, ranked even higher than substances like fentanyl, cocaine and methamphetamine. The DEA is now contemplating reclassifying marijuana as a Schedule III drug, aligning it with substances like ketamine and anabolic steroids, which are considered to have a moderate to low potential for dependence.
The recommendation for reclassification came from the U.S. Department of Health and Human Services (HHS). The final decision rests with the DEA, which will now commence its review.
A Booster for Marijuana
A federal reclassification could potentially expand the market for marijuana, which is a multibillion-dollar industry in the United States and a cash crop in many newly legalized states.
A Schedule III classification could ease the banking restrictions, allowing businesses to have more straightforward access to banking services and potentially attracting more investors. The reclassification could alleviate some of the tax burdens and help shift public perception, further legitimizing the medical cannabis industry and potentially paving the way for broader acceptance and use of marijuana as a therapeutic agent (read: SAFE Banking Act Resurgence Boosts Pot ETFs: A New Era Ahead?).
Additionally, a shift in the classification could provide momentum for more states to consider medical or recreational legalization, as it would signal a change in the federal government's stance on the drug's potential risks and benefits. Nearly 40 states in the United States have already legalized marijuana in various capacities.
Moving marijuana to Schedule III would provide clearer regulatory guidelines for businesses, potentially leading to more consistent product quality and safety standards across the industry.
ETFs to Tap
Roundhill Cannabis ETF (WEED - Free Report) – Up 40.4%
Roundhill Cannabis ETF is designed to offer investors exposure to the cannabis sector. The fund may invest in various cannabis-related companies, including cannabis producers and distributors, cannabis-related technology companies, and additional cannabis-related ancillary businesses. It holds six stocks in its basket (read: 5 Top-Performing ETFs of Last Week).
Roundhill Cannabis ETF debuted in the space in April and has gathered $2.2 million in its asset base so far. It charges 39 bps in annual fees and trades in 6,000 shares a day on average.
AdvisorShares Pure US Cannabis ETF (MSOS - Free Report) – Up 40%
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). It holds 28 securities in its basket with a double-digit concentration on the top four firms. AdvisorShares Pure US Cannabis ETF is highly skewed toward MSOs in terms of sector, making up for 99.3% of the portfolio.
AdvisorShares Pure US Cannabis ETF has amassed $392.2 million in its asset base while trading in an average daily volume of $2.6 million shares. It charges 80 bps in annual fees.
ETFMG U.S. Alternative Harvest ETF (MJUS - Free Report) – Up 30.8%
ETFMG U.S. Alternative Harvest ETF is designed to provide investors exposure to cannabis companies operating in the United States, including MSOs directly involved in the cultivation, production, marketing and distribution of cannabis or cannabis-related products. It holds 23 stocks in its basket with a heavy concentration of the five firms.
ETFMG U.S. Alternative Harvest ETF has amassed $115.4 million in its asset base and charges 75 bps in annual fees. It trades in a volume of 79,000 shares a day.
AdvisorShares Pure Cannabis ETF (YOLO - Free Report) – Up 30.1%
AdvisorShares Pure Cannabis ETF is an actively managed fund with a dedicated cannabis investment mandate domiciled in the United States. YOLO seeks long-term capital appreciation by investing in domestic and foreign cannabis equity securities. AdvisorShares Pure Cannabis ETF holds a basket of 22 stocks, with American firms making up 70% of the portfolio, followed by a 24.1% share of Canadian firms.
AdvisorShares Pure Cannabis ETF has gathered $37.4 million in its asset base and charges 88 bps in annual fees. YOLO trades in an average daily volume of 43,000 shares.
Amplify Seymour Cannabis ETF (CNBS - Free Report) – Up 25.8%
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 no more than 12.4% of the assets. Amplify Seymour Cannabis ETF provides 76.8% exposure to American firms and 23.1% to Canadian firms.
MSOs is the top industry in the CNBS basket at 37%, while cultivation and retail makes up for 27% share. With AUM of $27.4 million, Amplify Seymour Cannabis ETF charges 75 bps in annual fees and trades in an average daily volume of 14,000 shares.