Redwood Asset Management (MJJ): How Risky Is the Newly Launched ETF?

 Redwood Asset Management Frazao

Redwood (MJJ) Marijuana ETF

As the marijuana industry continues to grow, it only makes sense that investors are going to want more options in how to trade these assets. And the market will be all too willing to provide. Enter the Redwood Marijuana Opportunities Fund, the first actively-managed marijuana exchange-traded fund (ETF) in Canada, and the second cannabis ETF overall.

The Redwood (MJJ) marijuana ETF is important, both for its practical and symbolic purposes. The Redwood Asset Management ETF represents another way for investors to trade in the burgeoning marijuana market, and it represents an expansion of the market as it continues to grow and mature.

The Redwood Marijuana Opportunities Fund just launched a week ago, making it extremely young and hard to gauge its performance compared to the industry. (“New pot fund to take on Canada’s most popular ETF of 2018,” The Globe and Mail, January 31, 2018.)

It did come in at the right moment, however, just when the industry entered a huge rally. As of February 6, the ETF gained about 10% during its first week.  (“Marijuana Opportunities Fund,” Redwood Asset Management, February 7, 2018.)


We’ll look into how the Redwood fund will compare in the future to Canada’s other marijuana-centered ETF launched by Horizons ETF Management Canada, called Horizons Medical Marijuana Life Sciences Index ETF (TSE:HMMJ). But for now, let’s take a broader look at what this means for the industry.

First of all, the proliferation of ETFs represents an industry that is growing into its own. ETFs are often a great way to trade on the market, offering smaller investors the ability to invest in the market as a whole and not have to pick individual winners and avoid losers. It’s a safer way to invest, certainly, especially in an industry as volatile as weed.

ETFs are especially effective if you believe that the industry as a whole is set to rise, rather than a single stock dominating all others. And, considering the moves that the marijuana industry has made in the recent past, I’d say it’s a pretty safe assumption that most companies will move in conjunction with one another rather than act as competitors, at least in the near-term.

This makes the Redwood Marijuana Opportunities ETF especially enticing.

The second aspect to this development is legitimacy. While most investors are on board with marijuana investments, there’s still an air of uncertainty, due to the political aspect of cannabis. Namely, it’s not legal in many countries, and it doesn’t appear that it will be anytime soon.

ETFs and a broader growth in the market overall will only continue to legitimize the industry in the eyes of naysayers and skeptics, while also bringing in more money, and therefore boosting value.

Marijuana ETFs, therefore, are a great addition to the industry and, with many more likely to come in the future, expect a “best marijuana ETF for 2018” list somewhere down the line.

But first, let’s tackle the two current marijuana ETFs: Redwood Marijuana Opportunities Fund and Horizons Medical Marijuana Life Sciences.

HMMJ vs. MJJ ETF: Which One Is Better?

At the moment, it’s frankly impossible to say which ETF has performed better, since the Redwood Marijuana Opportunities Fund is simply too fresh to properly assess. Of course, its first week has not been too shabby, but again, it came into the market at exactly the right time.

How an investor chooses between the two funds will largely depend on their own investment philosophy.

The Horizon fund, which is on the Toronto Stock Exchange (TSX), is not actively managed, and it tracks the industry more broadly, while the Redwood fund has picked 12 stocks so far that it sees as winners.

Both approaches have their positives and negatives, with the Horizon fund likely being the safer of the two bets, due to its more overarching investment strategy, while Redwood has a better chance of making higher gains.

What it really comes down to is whether investors prefer more volatility or less. For those seeking higher highs and potentially lower lows, Redwood would be the one to pick. For investors who prefer more stability, they’re better off with Horizon.

Should You Invest in the Redwood Marijuana ETF?

If we’re using the Horizons Medical Marijuana Life Sciences Index ETF as a barometer, there’s a lot of potential in the Redwood Marijuana Opportunities Fund. HMMJ attracted more than $100.0 million in assets within its first month, speaking to the hunger for ETFs in the industry.

HMMJ has also been the most popular Canadian ETF overall this year, speaking to the strength of Canadian marijuana stocks.

It’s likely that MJJ will follow a similar—if more volatile—trajectory, and is well-suited for investors who both want a little less uncertainty than targeted investing, but still want to maintain that level of volatility that allows for such high gains.

Analyst Take

The entrance of the Redwood Marijuana Opportunities Fund into the market is good news for investors, since stock prices will increase in value as investors seize on the new opportunity, while the fund itself will fulfill a nice niche in the market.