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Marijuana ETF Space Gets Packed

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Marijuana or cannabis has been one of the hottest investing zones of late and ETF issuers are increasingly entering the space to tap the booming industry. The month of July has seen the launch of The Cannabis ETF (THCX - Free Report) by Innovation Shares on Jul 9 and Amplify Seymour Cannabis ETF CNBS by Amplify ETFs on Jul 23.

Inside CNBS

The actively-manage fund invests at least 80% of its assets in securities of companies that generate 50% or more of their revenues from the cannabis and hemp ecosystem. Cultivation and Retail takes about 61% of the fund, followed by Pharma and Biotechnology stocks occupying 20% of the portfolio and 10% weight in Investing & Finance.

Small-cap stocks rule the fund with about 41% exposure while micro-cap (27%) and mid-cap caps (24%) take the next two spots. Aurora Cannabis (8.42%), Canopy Growth (8.04%) and GW Pharmaceuticals (7.8%) are the top three holdings of the fund. There are total 25 stocks in the fund. It charges 75 bps in fees. 

“The fund is primarily invested in Canadian companies, with exposure to Israel and Australia also allowed under the fund’s investment standards,” per an article published on etf.com.

How Does it Fit in a Portfolio?

Investors should note that the legalization in Canada seems to be largely priced-in at the current level. But investors’ interest has been veering toward the United States where the industry is still in its nascent stage. There have been signs of immense growth since the signing of last year's U.S. Farm Bill in the hemp-derived CBD industry.

Though pot remains entirely illegal at the federal level, the total number of U.S. states greenlighting medical pot is now 34. And there are 10 states that approved the recreational use of marijuana. Pew Research Center indicates that public support for legalizing marijuana in the United States is now at 62% versus 54% in 2014 and 33% in 2004.

Medical use of cannabis is now legalized in 35 countries, up from only six a decade ago. There will be as much as $22 billion hemp-derived CBD product market in 2022, up from $591 million in 2018, according to Brightfield.

Be it medical, food and beverage or cosmetics, marijuana is making its presence felt. There are currently three FDA approved drugs using cannabinoids — two to treat nausea for cancer patients and one for certain types of seizures, per the issuer. Mergers and acquisitions have been rampant in the space, both across Canada and the United States (read: Likely Canopy-Acreage Deal Looks Good Enough to Boost ETF MJ).

Global legal cannabis sales have grown about 30% every year lately, with 2019 sales expected to jump 39% year over year, per data provided by BDS Analytics and Arcview Market Research, quoted on amplifyetfs.com. Per Arcview /BDS Analytics, global consumer spending on legal cannabis is likely to see a CAGR of 26.7% from 2017 to 2022.

Competition

THCX's 70 bps fee makes it the lowest cost U.S.-listed cannabis ETF. There are two other plays in the field, namely, ETFMG Alternative Harvest ETF (MJ - Free Report) launched in December 2015 and AdvisorShares Pure Cannabis ETF (YOLO - Free Report) thatdebuted in April 2019. By now, MJ has become a billion-dollar fund with an asset base of $1.14 billion. It charges 75 bps in fees. Having entered the market in mid-April, YOLO managed to garner about $60 million in assets. It charges 74 bps in fees. Not just these, Global X filed for a Marijuana ETF recently (read: Marijuana ETFs Head-to-Head).

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