Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.
The cannabis industry is an exciting emerging market that seems poised for tremendous growth, and cannabis investments have grown popular.
The downside, however, is that cannabis stocks are often quite volatile. The industry is full of inexperienced players and fierce competition. Attitudes toward medicinal and recreational cannabis use are changing, but it’s not entirely legal all over the world.
It’s hard to know which companies are good investments for your money. It’s even harder to predict how legal and regulatory climates will change. For most passive investors, understanding the cannabis industry well enough to pick and choose winning stocks is impractical. That’s where ETFs come in.
ETF: What is it?
What’s an ETF? It’s a pool of investor money. As an investor, you buy portions of the fund. The fund uses that money to buy other securities. Each share of an ETF represents a piece of everything the fund owns. Shares can be bought and sold on the open market.
There are thousands of ETFs available to meet any investor’s goals. Some track a particular index, like the S&P 500. Others invest in causes, like environmental sustainability or social responsibility. And there are plenty of ETFs that invest in whatever they think is profitable.
Cannabis EFTs are funds that in invest in companies that…
Grow, distribute, or sell cannabis products
Research medical uses for cannabis (pharmaceutical and biotech), or…
Have exposure to cannabis stocks (e.g. a tobacco company that’s moving into cannabis products)
There aren’t many cannabis ETFs available at the moment, but the ones that are available can expose you to the entire market. It’s smarter to use an ETF-based approach that invests you in many cannabis stocks, rather than trying to buy winning stocks on your own.Buy and sell thousands of stocks and funds with just a few taps, all commission-free. Get started with Wealthsimple Trade.
The Top Cannabis ETFs
If you want to get exposure to the cannabis industry without taking a lot of risk, these top cannabis ETFs could be right for your portfolio.
1. ETFMG Alternative Harvest ETF (MJ)
Total Assets: $891.06 million
Yield-to-Date Return: 1.39%
Expense Ratio: 0.75%
MJ is the first U.S. ETF that tracks the global cannabis industry. With nearly one billion in total assets, it’s also the largest cannabis-focused ETF in the world.
This ETF tracks the Prime Alternative Harvest Index. The index includes global cannabis companies involved in medicinal and recreational cannabis products, as well as some tobacco companies. The fund’s top holdings come from the United States, United Kingdom, and Canada. They also have holdings in Japan, Italy, and Sweden.
We like this fund because it’s been around since 2015. While that isn’t a long time for most securities, it is a long time for a cannabis security.
2. Horizons Marijuana Life Sciences Index ETF (HMMJ.TO)
Total Assets: $736.8 million
Year-to-Date Return: 1.93%
Expense Ratio: 0.86%
Horizons is a Canadian ETF traded on the Toronto Stock Exchange. It doesn’t trade on the major U.S. stock exchanges, but it is available to investors on the over-the-counter market.
This ETF is similar to the ETFMG Alternative Harvest EFT. It has about 50 holdings, but seven stocks account for more than 65% of the fund’s assets, including several cannabis cultivation stocks, a plant fertilizer, and a pharmaceutical company.
Unlike the Alternative Harvest EFT, Horizons focuses solely on players in the medicinal cannabis scene. It invests in some recreational cannabis companies, but only if they offer medicinal cannabis products and services as well. It does not invest in alcohol or tobacco companies. Nevertheless, there’s a lot of overlap between the two ETFs.
3. AdvisorShares Pure Cannabis ETF (YOLO)
Total Assets: $57.87 million
Yield-to-date Return: N/A
Expense Ratio: 0.74%
This is the first actively managed cannabis ETF. It puts at least 80% of its net assets into companies who derive at least 50% from cannabis, hemp, and derivative products.
YOLO doesn’t track an underlying index. Instead, its managers focus on mid- and small-cap securities (companies with less than $600 million market cap) in the pharmaceutical, biotech and life-science sectors. The EFT invests in both domestic and foreign securities, such as OrganiGram Holdings Inc, CannTrust, Charlotte’s Web Holdings Inc, and HEXO Corp.
4. The Cannabis ETF (THCX)
Total Assets: $18.34 million
Year-to-Date Return: N/A
Expense Ratio: 0.70%
The Cannabis ETF (yes, that’s really it’s name) is a brand new ETF that began trading on the NYSE exchange in July of 2019. It’s a passive investment vehicle because it tracks the Innovation Labs Cannabis Index, which is a list of global companies with interests in legal cannabis, hemp, and CBD pharmaceutical and wellness products. The ETF’s top holdings include Cronos Group, Canopy Growth, GW Pharmaceuticals, and Aurora Cannabis.
Unlike most ETFs that rebalance quarterly, The Cannabis ETF rebalances monthly. This means it will track the index more closely than other ETFs. We also like The Cannabis ETF because it’s cheaper than other cannabis ETFs. Its expense ratio is slightly lower than the ETFMG Alternative Harvest ETF, which is considered the gold standard of marijuana ETFs.
Finally, we like this ETF because it’s a “pure play.” Unlike other ETFs, it does not invest in other vice securities like alcohol or tobacco. It only invests in cannabis, hemp, and CBD, which is good for investors who don’t want to be involved with other vices.
5. AdvisorShares Vice ETF (ACT)
Total Assets: $13.27 million
Yield-to-Date Return: 12.54%
Expense Ratio: 0.75%
ACT is one of the first ETFs to focus solely on vice activities. It’s an actively managed fund that invests in U.S. companies that generate at least 50% of their revenue from legal alcohol, cannabis, and tobacco businesses.
Unlike other funds on this list, the fund managers of ACT have broad investment discretion. However, the fund must invest at least 25% of its assets in consumer staples. It often invests its remaining assets in pharmaceutical, real estate, biotechnology, retail, and financial sectors. If you purchase this ETF, you’ll need to be comfortable letting its managers make investment decisions.
It’s worth pointing out that this fund has an exceptional yield-to-date return. Past performance does not guarantee future results, but positive returns are encouraging to see in an actively managed fund.
6. Evolve Actively Managed Marijuana ETF (SEED)
Total Assets: $10.04 million
Year-to-Date Return: 11.91%
Expense Ratio: 0.75%
SEED is an actively managed ETF on the Toronto Stock Exchange that offers exposure to a diversified portfolio of domestic and international cannabis securities (though most of them are Canadian). It’s top holdings include Canopy Growth, Charlotte’s Web Holdings, OrganiGram Holdings, HEXO Crop, and Aurora Cannabis.
7. Cambria Cannabis ETF (TOKE)
Total Assets: $6.47 million
Yield-to-Date Return: N/A
Expense Ratio: 0.42%
TOKE is an actively managed ETF that only began trading in July of 2019. It’s managed by Cambria Investment Management, a private financial services company in LA who manages more than a billion dollars in assets.
Like many of the ETFs on this list, TOKE aims to devote at least 80% of its assets on companies who derive at least 50% of their revenue from cannabis or related products. It has many of the top marijuana stocks in its portfolio, such as Aurora Cannabis, GW Pharmaceuticals, CannTrust Holdings, and Canopy Growth.
This is a small ETF with only a few million in holdings, but we like it because it’s the cheapest ETF available. If its expenses stay low, this ETF could be a great long-term hold.
8. Amplify Seymour Cannabis ETF (CNBS)
Total Assets: $2.37 million
Yield-to-Date Return: N/A
Expense Ratio: 0.75%
Like some of the other top cannabis ETFs on this list, CNBS is actively managed. The fund invests at least 80% of its assets in companies who get 50% or more of their revenue from cannabis and hemp initiatives. This can include companies involved in agriculture, real estate, technology, finance, media, or consumption devices.
Most of the fund’s holdings are mid- and small-cap companies. About a quarter are classified as micro-cap stocks. Top holdings include GW Pharmaceutical, Aurora Cannabis, Tilray, and Canopy Growth Corp.
Which Cannabis ETF is Right For You?
Fortunately, this isn’t a hard decision. Most of the top cannabis ETFs share the same holdings because there aren’t many publicly traded companies who deal with cannabis products.
The best cannabis funds (or any investment for that matter) are the ones that suit your needs and goals. It’s never wise to go all-in on one sector. Cannabis funds should be just a part of your entire investment portfolio. Make sure you diversify as much as possible.Wealthsimple Invest is an automated way to grow your money like the worlds most sophisticated investors. Get started and we'll build you a personalized investment portfolio in a matter of minutes.
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