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Close the year on a high with these cannabis ETFs

US legal cannabis market set to reach $11bn this year.
It is expected that the US market will be spending more money on cannabis than fizzy soft drinks by 2030. Picture: Shutterstock.

Over the past decade, policy reform, recognition and legalisation of marijuana in the United States has seen the industry grow. Its medical use is legal in 30 states, and nine states have legalised its recreational use. The has improved the industry’s outlook, with numerous mergers in the past two years. The ripple effect is evident even in somewhat distant sectors – Coca-Cola, for example, is working with cannabis producer Aurora Cannabis to make marijuana-infused beverages.

The US legal cannabis market is set to reach US$11 billion in consumer spending this year and more than US$23 billion by 2022, with projections of US$75 billion by 2030. If that were to happen, cannabis sales will exceed those of carbonated soft drinks. But can one ride the cannabis high on the markets today? 

Just like any other, the cannabis industry has numerous stocks but not all are investable and one needs to understand which segment to add to one’s portfolio. With a vast array of stocks, the choice is majorly distinguished by supply or demand as some companies cultivate cannabis or participate in its legal production while others focus on marketing it and yet more create, market and distribute prescription drugs which have cannabinoids as an ingredient.

ETFMG Alternative Harvest ETF (ticker: MJ US)

This ETF presents a holistic entry into the complex world of cannabis stocks as it tracks a market-cap-weighted index of global firms involved in the legal cultivation, production, marketing or distribution of cannabis and cannabinoid products for medical or non medical purposes. As a hedge, it also holds stocks of companies that trade or produce tobacco or tobacco products, fertilizers, plant foods and pesticides.

However, unlike traditional cannabis ETFs, it also holds pharmaceutical companies that produce, market or distribute drug products that use cannabinoids, thus exposing your portfolio to both pharmaceutical companies’ and growers’ stocks. In addition, the fund’s policy to only hold stock of legal companies that hold permits plays down the volatility and supply side risk. With over 28 stocks on the ETF, the ETFMG is a safe way to enter the fast-growing cannabis market.

It has also gone the extra mile to avert forex risk by investing in its own foreign stock.  

Source: ETFMG Alternative Harvest ETF.

Horizons Junior Marijuana Growers Index ETF (HMJR CN)

This ETF was designed to track the performance of a basket of primarily publicly listed companies involved in the cultivation, production and/or distribution of marijuana. If you are looking for exposure to small caps, this is definitely your entry as HMJR’s strategy is solely focused on smaller companies, including some from Uruguay, Germany and Australia, where there is also capital market activity in the cannabis space. Interestingly, the ETF allocates 20% of its holdings toward companies based outside the US.

As a hedge against the large cap companies in the ETFMG ETF, the HMJR provides for a buffer as it focuses on smaller growers.

Source: HMJR

Presently, the HMJR ETF has just over US $10 million in assets under management but listed companies under HMJR have market caps ranging from US $50 million to US $500 million. Due to the small market cap and the relatively smaller assets under management, this ETF yields higher returns. But the higher returns also come at the risk of higher forex volatility given its exposure to European and South American markets which are yet to fully legalise cannabis. 

The ETFMG trades on the NYSE Arca while the HMJR is incorporated in Canada with real-time quotes available just in case you are looking to pot up your portfolio.

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Very interesting options to consider, thanks Arnold. The world is certainly going potty.
But, never having invested in EFT’s, can you give details for those that might be keen to take up your suggestions, i.e. how does someone from SA most cost effectively go about investing in either of these EFT’s?

I’d also like to know how someone from SA can invest please?

End of comments.





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