Weed Etf Investment: Getting Started And Growing Your Portfolio

Marijuana ETFs, or Exchange-Traded Funds, are a way to invest in a range of cannabis-related companies. They offer diversification by spreading your money across a basket of stocks, lowering your risk compared to investing in individual stocks. The global cannabis market is projected to reach $134.4 billion by 2030, growing at a 25.3% annual rate, making marijuana ETFs an attractive investment opportunity.

Marijuana ETFs invest in companies across the entire cannabis industry, from product conception to consumption. For example, the AdvisorShares Pure US Cannabis ETF, the largest marijuana ETF in terms of assets under management, invests in major U.S. cannabis companies like Green Thumb Industries, Trulieve Cannabis, and Curaleaf Holdings.

While investing in marijuana ETFs carries considerable risk due to regulatory uncertainty and the volatile nature of the industry, it also offers the potential for high returns as the industry continues to grow and gain acceptance.

Diversification and risk reduction

The cannabis industry is relatively new and volatile, so diversification is especially important. For example, the AdvisorShares Pure US Cannabis ETF, the largest weed ETF, invests in companies across the entire marijuana industry, including GW Pharmaceuticals, Cronos Group, Canopy Growth Corporation, and Aurora Cannabis. This diversification means that if one company in the fund fails, those losses can be offset by the success of another company in the fund.

However, it's important to note that weed ETFs themselves are still risky investments due to the regulatory uncertainty surrounding the cannabis industry. For instance, while marijuana has been legalised in several US states, it is still considered illegal by the federal government. This creates a grey area between state and federal laws that can lead to uncertainty for investors.

Additionally, the cannabis industry suffers from oversupply, lack of access to mainstream institutional investors and lending, and competition from the illicit market, where weed is sold at lower prices. These factors have led to poor performance in recent years, and investors have fled the industry.

Despite these challenges, the potential for growth in the cannabis industry is significant. It is projected to be a $134.4 billion global market by 2030, growing at a 25.3% annual rate. This makes weed ETFs an attractive investment for those willing to take on substantial risk and hold their investments for the long term.

Top-performing weed ETFs

Marijuana ETFs offer diversification, lowering the risk compared to individual stocks. Here are some of the top-performing weed ETFs:

AdvisorShares Pure US Cannabis ETF (MSOS)

The largest marijuana ETF based on assets under management, this fund focuses exclusively on the U.S. cannabis market. Its top holdings include Green Thumb Industries, Trulieve Cannabis, Curaleaf Holdings, Verano Holdings, and Cresco Labs, which make up over 82% of its portfolio. MSOS has outperformed the S&P 500 with a year-to-date gain of 27.8% as of May 8, 2024, and has an expense ratio of 0.83%.

Amplify Alternative Harvest ETF (MJ)

The second-largest cannabis ETF, Amplify Alternative Harvest ETF, is globally focused and passively managed against the Prime Alternative Harvest Index. Its top holdings include Innovative Industrial Properties, Tilray Brands, SNDL, Cronos Group, and Canopy Growth. Its assets under management stood at $324.2 million, and it has gained 27% year-to-date as of May 8, 2024, with an expense ratio of 0.78%.

Amplify U.S. Alternative Harvest ETF (MJUS)

This actively managed ETF focuses on U.S. cannabis companies and invests at least 80% of its assets in companies that derive at least half their revenue from the cannabis business in the U.S. Its top holdings include Trulieve Cannabis, Green Thumb Industries, Verano Holdings, and Cresco Labs. MJUS has gained 23.6% year-to-date as of May 8, 2024, and has an expense ratio of 0.75%.

AdvisorShares MSOS 2x Daily ETF (MSOX)

The fourth-largest cannabis ETF, MSOX, offers magnified returns by investing in swap agreements on AdvisorShares Pure US Cannabis ETF. Its top holdings include Trulieve Cannabis, Green Thumb Industries, and Cresco Labs. MSOX has gained 25.7% year-to-date as of May 8, 2024, and has an expense ratio of 0.95%.

AdvisorShares Pure Cannabis ETF (YOLO)

AdvisorShares' second ETF is globally diversified, with holdings from Canada, the UK, and Israel. It holds stocks outright and uses swaps, with part of its allocation in MSOS. Its top five individual stocks are High Tide, Village Farms International, Cardiol Therapeutics, SNDL, and Cronos Group. YOLO has gained 31.5% year-to-date as of May 8, 2024, and has an expense ratio of 1.03%.

Amplify Seymour Cannabis ETF (CNBS)

Actively managed, CNBS uses swaps to invest in U.S. plant-touching marijuana stocks. Its top holdings include Trulieve Cannabis, Green Thumb Industries, and Cresco Labs, as well as Innovative Industrial Properties and Tilray Brands. CNBS has gained 25.1% year-to-date as of May 8, 2024, and has an expense ratio of 0.75%.

Cambria Cannabis ETF (TOKE)

The smallest fund on this list, Cambria Cannabis ETF, is a global, all-cap ETF targeting 20 to 50 of the top cannabis companies worldwide. It is also the cheapest on the list, with an expense ratio of 0.42%. TOKE has risen 9.9% year-to-date as of May 8, 2024.

How to buy weed ETFs

Marijuana ETFs, or weed ETFs, are exchange-traded funds that focus on cannabis-related companies. These funds provide a way to invest in the cannabis industry by offering diversification and potentially lowering the risk compared to investing in individual stocks. Here's a step-by-step guide on how to buy weed ETFs:

• Understand the Risks and Benefits: Investing in the cannabis industry comes with certain risks due to regulatory uncertainty, financing hurdles, and unpredictable business operations. However, the industry is expected to grow significantly, with the global cannabis market projected to reach up to $134.4 billion by 2030.
• Research and Choose a Weed ETF: Popular weed ETFs include the AdvisorShares Pure US Cannabis ETF (MSOS), Amplify Alternative Harvest ETF (MJ), Amplify U.S. Alternative Harvest ETF (MJUS), and Roundhill Cannabis ETF (WEED). Compare the assets under management, expense ratios, diversification, and performance of these ETFs to make an informed decision.
• Select a Brokerage Platform: Choose a reputable brokerage platform that offers access to the weed ETF you want to invest in. Some popular options include online brokers like Fidelity, Charles Schwab, and TD Ameritrade. Compare the fees, features, and ease of use of different platforms before opening an account.
• Open an Account and Deposit Funds: Sign up for an account with your chosen brokerage platform and link your bank account. Deposit funds into your brokerage account using a bank transfer or other supported payment methods.
• Buy the Weed ETF: Once your account is funded, search for the ticker symbol of the weed ETF you want to purchase. Enter the number of shares you want to buy and place a buy order. You may be able to set a limit order, which allows you to specify the price you want to pay for the shares.
• Monitor and Diversify Your Portfolio: Regularly review the performance of your weed ETF investment and the overall cannabis industry. Consider diversifying your portfolio by investing in other ETFs or individual stocks across different sectors to manage risk.

Remember that investing in weed ETFs carries risks, and past performance does not guarantee future results. It's essential to do your research, understand the industry, and make investment decisions that align with your financial goals and risk tolerance.

The future of weed ETFs

The future looks bright for weed ETFs, with the global legal cannabis market projected to reach $61 billion by 2026 and $134.4 billion by 2030, growing at a 25.3% annual rate. This growth will be driven by continued legalization by U.S. states and foreign governments, with cannabis now legal in some form in 39 states.

The top-performing weed ETFs in November 2024 include Roundhill Cannabis ETF (WEED), AdvisorShares Pure US Cannabis ETF (MSOS), and Amplify Alternative Harvest ETF (MJ). These ETFs provide diversified exposure to the cannabis industry, investing in companies across the marijuana value chain, from product development to distribution.

Looking ahead, weed ETFs will continue to benefit from the increasing acceptance of marijuana for medical and recreational use. Regulatory changes, such as the potential reclassification of cannabis as a less dangerous drug, could also boost the performance of weed ETFs.

However, investing in weed ETFs carries considerable risk due to regulatory uncertainty, financing hurdles, and unpredictable business operations. The industry also faces challenges such as oversupply, competition from the illicit market, and lack of access to institutional investors and lending.

For investors willing to take on the risk, weed ETFs offer an opportunity to capitalize on the high growth potential of the cannabis industry. Diversification through ETFs can help mitigate the risk of investing in individual marijuana stocks, which can be extremely volatile.

In the future, the performance of weed ETFs will depend on the evolving legal landscape and the ability of the industry to overcome current challenges. If regulatory changes favour the cannabis industry, weed ETFs could see increased inflows and price appreciation as institutional investors become more involved.

The risks of weed ETFs

Investing in cannabis ETFs comes with considerable risk. Here are some of the key risks to consider before investing:

Regulatory Uncertainty

Cannabis remains illegal at the federal level in the US, despite an increasing number of states legalising it for medical or recreational use. The US Drug Enforcement Administration (DEA) is proposing to reclassify weed as a less dangerous drug, which could open up new opportunities for cannabis companies and investors. However, this proposal has not yet been finalised and does not make marijuana fully legal. The fluidity in enforcement and the grey areas between state and federal laws create ongoing uncertainty for investors.

Financing and Banking Challenges

The cannabis industry has historically faced challenges in accessing traditional financing and banking services due to the regulatory uncertainties and the hesitancy of banks to back companies in this industry. While there have been some positive developments, such as the reintroduction of the Secure and Fair Enforcement Banking Act in 2023, the landscape is still evolving, and many developments are not yet concrete. This continued uncertainty can impact the performance of weed ETFs.

Volatility and Risk

The cannabis industry is new and volatile, with unpredictable business models and operations. Weed ETFs are subject to significant price fluctuations and limited growth in some cases. The industry also faces challenges such as oversupply, competition from the illicit market, and poor management, which have driven away investors. Additionally, the selection of companies within weed ETFs may impact performance, as underperforming companies can drag down the overall returns.

Legal and Reputation Risks

Banks and other financial institutions are concerned about the potential legal and reputation-related risks associated with backing an ETF that deals in an industry that is not fully legal at the national level. This has resulted in many weed ETFs facing setbacks in getting started or even failing to get off the ground. Even those that succeed in launching face tough negotiations with regulators and custodian institutions.

In summary, while the legalisation of cannabis in various states and the potential for further legalisation may present investment opportunities, weed ETFs come with considerable risks. These risks include regulatory uncertainty, financing challenges, industry volatility, and legal and reputation risks for financial institutions. Investors need to carefully consider these risks and conduct thorough research before investing in this space.

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