One More Marijuana ETF on the Block

Sanghamitra Saha

Marijuana or cannabis has been one of the hottest investing zones, of late, and ETF issuers are increasingly foraying into this space to tap the booming industry. The latest product, which entered the field on Sep 17, is The Global X Cannabis ETF POTX (read: Worst Sector ETFs of August).

Inside POTX

The fund is looking to invest in companies across the cannabis industry. This includes companies involved in the legal production, growth and distribution of cannabis and industrial hemp, as well as the ones involved in providing financial services to the industry, pharmaceutical applications of cannabis, cannabidiol (i.e., CBD), or other related uses, including but not limited to extracts, derivatives or synthetic versions.

Eligible holdings have to be in operation that is legal under applicable national and local laws, including the U.S. federal, state, and local laws. Canopy Growth (9.12%), GW Pharmaceuticals (8.16%) and Hexo Corp (8.14%) are the top three holdings. Pharmaceuticals (91.06%) and Biotechnology (3.99%) are the top two sectors. Canada (81.14%) is the top country in the fund. The fund charges 50 basis points (bps) in fees.   

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. However, investors’ interest has been veering toward the United States where the industry is still in its nascent stage. There have been indications of stellar 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 have approved the recreational use of marijuana. The Pew Research Center indicates that public support for legalizing marijuana in the United States now stands at 62% versus 54% in 2014 and 33% in 2004.

Colorado, which legalized the recreational retail distribution of cannabis at the state level in 2014, witnessed sales of $14 million per month in the initial years. By June 2019, the state started seeing $122 million in monthly sales, per Global X.

Medical use of cannabis has now been 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 the $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.

Global legal cannabis sales have climbed about 30% every year, lately, with 2019 sales anticipated to jump 39% year over year, per the data provided by BDS Analytics and Arcview Market Research, quoted on amplifyetfs.com. Global X expects revenues derived from legal cannabis to reach $14.9 billion in the current year, marking a 36% year-over-year growth rate. Per Arcview /BDS Analytics, global consumer spending on legal cannabis is likely to see a CAGR of 26.7% from 2017 to 2022.

Competition

The fund’s 50-bps feemakes it the lowest cost-passive U.S.-listed cannabis ETF. Otherwise, Cambria Cannabis ETF TOKE, which is active, charges 42 bps in fees.

Other prominent players in the field are ETFMG Alternative Harvest ETF MJ, AdvisorShares Pure Cannabis ETF YOLO, Cannabis ETF THCX and Amplify Seymour Cannabis ETF CNBS.  MJ — the largest fund with about $909.3 million in assets — was launched in December 2015 (read: Marijuana ETFs Head-to-Head).

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AdvisorShares Pure Cannabis ETF (YOLO): ETF Research Reports
 
Cambria Cannabis ETF (TOKE): ETF Research Reports
 
ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
 
Amplify Seymour Cannabis ETF (CNBS): ETF Research Reports
 
The Cannabis ETF (THCX): ETF Research Reports
 
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