A Few Marijuana ETFs For U.S. Investors

The marijuana industry is taking North America by storm, well maybe that happened back in the ’60s, but now the legal marijuana industry is doing it today. Despite the fact that the U.S. Federal Government still considers marijuana a Schedule I substance and therefore illegal, it appears the “pot” movement is taking hold as 29 U.S. States have already legalized the use of medical marijuana and another eight have legalized marijuana for recreational use.

This movement has drawn the attention of everyday investors and those on Wall Street. Over the past few years, we have seen an explosion of small, risky, marijuana investments pop up. The sheer number of options has been overwhelming and very risky for average investors to get involved with, but that is all changing very quickly.

In the spring of 2017 the first marijuana ETF, Horizons Marijuana Life Sciences Index ETF (HMMJ), debuted. This was investors first chance to buy into the industry without taking on ‘single-stock’ risk in a very fragmented and risky industry.

The big issue though with HMMJ is that it is a Canadian ETF and thus it trades on the Toronto Stock exchange. That means for U.S. based investors it was either difficult, as in their online broker wouldn’t allow them to buy the investment, or very expensive, as in $60 per transaction (that is $60 trading commission to buy and $60 to sell it).

Then in December of 2017, U.S. investors were finally given a chance to easily buy not one, but two different marijuana ETFs when the Alternative Harvest ETF (MJX) and AdvisorShares Vice ETF (ACT) began trading.

The Alternative Harvest ETF is certainly more the pure-marijuana play as it is a marijuana indexed ETF. That means it tracks a market-cap-weighted index of global companies who are engaged in the legal cultivation, production, marketing or distribution of cannabis, cannabinoids or tobacco. The AdvisorShares Vice ETF is an actively managed fund which invests in US companies that operate in alcohol, cannabis, or tobacco related ventures.

Both funds carry a 0.75% expense ratio, roughly hold the same numbers of companies, 30 for MJX and 28 for ACT, and MJX has a weighted average market cap of $15 billion while ACT’s weighted average market cap is $45 billion.

MJX’s and ACT’s top 10 holdings both represent 50% of the fund at this time, which we should expect to see change as the fund's age, but that is something to keep an eye on. Furthermore, while MJX’s top ten holdings all lean toward the marijuana industry, ACT’s is much less positioned in that manner at this time.

This would also make MJX riskier, since after all marijuana is still illegal in the eyes of the Federal Government and it is still viewed negatively by a large number of American’s, even in States where it is legal. But, the other side of that coin is, there may be much greater upside with MJX than ACT. Economists are estimating that legal marijuana sales in the U.S. for 2017 will be $10 billion. That figure is expected to rapidly increase in 2018, especially because pot became legal in California starting in 2018. Marijuana could be truly the ‘next big industry’ to skyrocket and make investors billions over the next few decades.

While it is hard to see a clear path the industry will take, I will leave you with this one last thought. The most successful American industry from 1900 – 2010 was tobacco. That was during a time of massive progress and innovation in other industries, and while the tobacco companies were constantly under fire from regulators, law-suites, anti-smoking campaigns, and even falling volumes. But despite everything negative, cigarette companies still prevailed. I am not saying marijuana industry will be the same, but I certainly see a future in which it could.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.