Cannabis Markets

Top 3 Cannabis ETFs to Profit From Expanded Legalization

Cannabis legalization is expanding.

Not just here in the U.S. but across the world.

There’s a lot of excitement about the potential upside this could bring investors. We’re talking about a global market that’s not measured in millions or billions of dollars but in hundreds of billions and possibly trillions of dollars!

As legalization becomes a reality, more and more investors are tuning in to the space.

And that’s great. I think cannabis has a long tailwind of five to 10 years.

The market has heard the calls for investment opportunities and, in turn, created instruments.

But I believe investors are too often in a hurry to plow money into cannabis and don’t understand what they’re truly buying… or what the opportunities in the space actually are.

So today, I’m going to delve into a popular topic: cannabis exchange-traded funds (ETFs).

As many of us are well aware, ETFs can be a great way to tap into a sector’s growth. But with the number of cannabis ETFs on the market growing, it’s worth taking a moment to look under the hood.

Puff, Puff to Profits

The ETFMG Alternative Harvest ETF (NYSE: MJ) transitioned from an international real estate fund to a cannabis ETF several years ago.

Today, it remains one of the most popular cannabis ETFs, with $1.695 billion in assets under management.

And I think it can be a fine cannabis ETF to own if it suits your investment thesis for the sector.

But if you’re looking to capitalize on the expansion of American cannabis – or looking for exposure to the U.S. market – then I don’t think this is necessarily the right choice.

Here’s a look at its top 10 holdings…

ETFMG Alternative Harvest Top 10 Holdings

GW Pharmaceuticals (Nasdaq: GWPH), its largest holding, was recently acquired by Jazz Pharmaceuticals (Nasdaq: JAZZ) for $7.2 billion.

We then have four Canadian licensed producers: Aphria (Nasdaq: APHA) and Tilray (Nasdaq: TLRY), which are merging, as well as Canopy Growth Corp. (Nasdaq: CGC) and Cronos Group (Nasdaq: CRON).

GrowGeneration (Nasdaq: GRWG) is the largest hydroponics retailer in the U.S. So that does provide some exposure to the American cannabis market via those gardening supply sales.

The ETF also holds Schweitzer-Mauduit International (NYSE: SWM), a paper products company that makes rolling papers.

Last, it has three tobacco companies: Altria (NYSE: MO), Philip Morris International (NYSE: PM) and Vector Group (NYSE: VGR).

These 10 companies account for 56.8% of the ETF, and there’s a lot of focus on inhalation and tobacco.

American-Made

The next-largest cannabis ETF is one of my personal favorites – the AdvisorShares Pure US Cannabis ETF (NYSE: MSOS).

If you’re looking for exposure to the U.S. cannabis market but can’t purchase shares of over-the-counter (OTC) companies, this is the ETF for you.

It currently has more than $1 billion in assets under management. And the ETF’s concentration is exactly as its name implies.

AdvisorShares Pure U.S. Cannabis ETF Top 10 Holdings

Its top 10 holdings are a “who’s who” of U.S. multistate operators (MSOs).

The largest positions are in Curaleaf Holdings (OTC: CURLF), Green Thumb Industries (OTC: GTBIF), Trulieve Cannabis (OTC: TCNNF) and Cresco Labs (OTC: CRLBF).

I consider these the American “cannabis majors” because they’re the largest MSOs in the country, reporting more than $160 million in quarterly revenue apiece.

Plus, the ETF provides exposure to GrowGeneration and the cannabis real estate investment trust Innovative Industrial Properties (NYSE: IIPR).

From there, the ETF has stakes in lower-tier MSOs. In all, these top 10 positions account for 54.53% of its total holdings.

#YOLO!

Mel Brooks once said, “Tragedy is when I cut my finger. Comedy is when you fall into an open sewer and die.”

Now, if someone were to get a paper cut every time they used the phrase “YOLO” unironically, I wouldn’t consider it a tragedy. I’d consider that karmic justice.

And even though the ticker “YOLO” might be better for a “meme stonk” ETF, it suits AdvisorShares Pure Cannabis ETF (NYSE: YOLO) just fine.

Back in 2019, it became the first available actively managed cannabis ETF located in the U.S. It currently has $370.4 million in assets under management. And despite its ticker, its approach is fairly diversified.

AdvisorShares Pure Cannabis Top 10 Holdings

We’ve seen holdings shift since the ETF first launched.

We have biotech exposure with Arena Pharmaceuticals (Nasdaq: ARNA) and GW Pharmaceuticals.

We have CBD companies with Charlotte’s Web Holdings (OTC: CWBHF) and cbdMD (NYSE: YCBD).

And its biggest positions are in greenhouse operators Village Farms International (Nasdaq: VFF) and Innovative Industrial Properties.

Plus, we have the No. 1 and No. 2 Canadian cannabis producers, Aphria and Canopy, as well as Canopy’s investment arm, RIV Capital (OTC: CNPOF).

The ETF’s top 10 holdings account for 58.26% of its assets.

It’s one of the most well-rounded cannabis ETFs, in my opinion.

We have to remember that investing in cannabis is a marathon, not a sprint. For investors looking for a one-stop shop for long-haul exposure to the industry, the avenues to do so continue to expand.

But keep in mind, they’re not all created from the same mold. They each have specific purposes, and you have to make sure you’re investing in the one that suits your needs.

Here’s to high returns,

Matthew

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