In this week’s Marijuana Market Update, I answer a viewer’s email about cannabis exchange-traded funds (ETFs).
Robert emailed me at Feedback@MoneyandMarkets.com and said:
I wonder if your audience would benefit from listing the top three or four marijuana-themed ETFs and differentiating between them. I know I would appreciate it greatly.
Thanks for your email, Robert.
Let’s see what I found in this week’s Marijuana Market Update.
Side-by-Side Statistics of 6 Cannabis ETFs
Right now, there are about 10 primary ETFs themed around cannabis.
There are several derivatives of those as well (like 2X inverse and 2X standard) — but we’ll leave those for another day.
Today, we’ll focus on six of the more well-known cannabis ETFs:
- AdvisorShares Pure U.S. Cannabis ETF (NYSE: MSOS).
- ETFMG Alternative Harvest ETF (NYSE: MJ).
- Global X Cannabis ETF (Nasdaq: POTX).
- AdvisorShares Pure Cannabis ETF (NYSE: YOLO).
- Amplify Seymour Cannabis ETF (NYSE: CNBS).
- Cambria Cannabis ETF (BATS: TOKE).
Let’s start with a side-by-side comparison of the six funds:
There is a lot of variance between these six cannabis ETFs.
Four of them have similar expense ratios (the percentage of your investment taken in fees annually).
But the other two (TOKE and YOLO) are much lower.
Their assets under management (market value of the investments in the fund) range from $740.1 million down to $15.7 million.
The average daily volume (value of shares traded within a day) go from $470.9 million down to $8.5 million.
MSOS has 15 holdings, but the value of those holdings means it owns a lot of shares of a few companies.
That ETF doesn’t trade as much compared to other funds like POTX.
Because the cannabis market is limited, most of these ETFs hold the same stocks.
The difference will be what their biggest holdings are.
Side-by-Side Holdings Comparison
For example, 92% of the holdings in MSOS are Treasurys and derivative securities, with the remaining 8% being actual cannabis companies.
MJ, on the other hand, has 18% of its capital invested in its sister fund, the ETFMG U.S. Alternative Harvest ETF (NYSE: MJUS), and 10% in Canopy Growth Corp. (Nasdaq: CGC).
POTX has 10.4% in CGC and 9.4% in SNDL Inc (Nasdaq: SNDL).
This is why it is important to look closer at what each of these ETFs hold.
MSOS is investing far less in actual cannabis companies than some of its counterparts.
This is meant to mitigate the risk in the current cannabis market.
Side-by-Side Performance Comparison: 1 Year
Now, let’s look at a side-by-side comparison of performance:
We’ll zoom out to the last 12 months.
In that time, TOKE has been the best performer of the six.
MSOS’ risk mitigation has helped, but it’s still down quite a bit.
But the remaining four are off by at least 60%.
TOKE holdings in Constellation Brands Inc. (NYSE: STZ), Jazz Pharmaceuticals PLC (Nasdaq: JAZZ), Scotts Miracle-Gro Co. (NYSE: SMG) and tobacco companies (which have performed better than the broader cannabis market) bolster its price.
YOLO, MJ and CNBS have similar holdings, with the main difference being the percentage of each of those holdings.
POTX’s bets on big cannabis players CGC and Aurora Cannabis (nearly 20% of the ETF’s holdings) is a main reason why it has fallen over the last 12 months.
Cannabis ETF Performance: 3 Months
We can zoom in closer and look at the performance over the last three months.
Here we see that risk mitigation for MSOS pay off more, as the ETF has regained some of its losses since the end of May.
TOKE is also performing better than the rest of the pack.
The other four are off double-digits during this time period.
Side-by-Side Performance Comparison: 1 Month
Lastly, let’s get even closer and look at the 1-month performance:
MSOS is outperforming these other funds by a wide margin over the last month — thanks to its risk mitigation.
As more investors turned toward bonds with the market in flux, those Treasury holdings in MSOS pushed it up over the last month.
TOKE’s bet on the more fringe cannabis plays has hurt the ETF. It’s down 3.2% over the same time.
The point here is if you are looking to break into this market with cannabis ETFs, you have to pay attention to the types of holdings these funds are invested in.
Bottom line: Not all cannabis ETFs are equal.
Their performance is based on their holdings and the percentage each stock makes up of those holdings.
Over the long term, MSOS wasn’t the best play.
However, zooming in closer, its bet on Treasurys has made it a short-term winner.
I hope that helps you out, Robert.
That’s all for me this week.
One more thing: Any questions? You can get Money & Markets swag by submitting a question for me, Adam O’Dell or Charles Sizemore that we’ll use in any of our videos. Just send us your questions and feedback.
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Also, you can follow me on Twitter (@InvestWithMattC), where I’ll give you even more insights, not just on the cannabis market. You can also check out my new Stock Power Daily series on the Money & Markets website. I give you a new stock every day that I expect to outperform the market based on our proprietary Stock Power Ratings system.
Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Stock Power Podcast, as well as the Marijuana Market Update. He’s also a certified Capital Markets and Securities Analyst through the Corporate Finance Institute. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.