Should You Consider Investing in Marijuana ETFs in the U.S.?

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Marijuana ETFs in the U.S.

Before this week, it would have been hard for me to recommend jumping into marijuana ETF stocks in 2018. The industry had been undergoing a massive correction, so, naturally, an ETF that tracks marijuana stocks would not have been the best investment at the time.

But, with the recent uptick in marijuana stocks across the board, alongside the existence of a number of solid marijuana ETFs in the U.S., now might be just the right time to get into these funds.

Marijuana ETF stocks have, as mentioned, tanked so far in 2018. But, with the recent uptick in value we’ve seen, due to some good news rolling out in the U.S., investors may have been gifted a solid opportunity to buy marijuana stocks at low prices, right before the recovery kicks into full swing.

When it comes to U.S. marijuana funds, there is really only one option: ETFMG Alternative Harvest ETF (NYSEARCA:MJ).

The fund is the largest U.S.-based ETF operating in the marijuana sector. While the company maintains large investments in Canadian marijuana stocks, it is listed on an American stock exchange.

ETFMG holds roughly five percent stakes in a number of Canadian marijuana stocks, including Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) and Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED). (Source: “Top Ten Fund Holdings,” Alternative Harvest Fund, last accessed April 18, 2018.)

But a good chunk of this cannabis stock ETF, and what differentiates it from a number of other funds, is its investment in tobacco companies.

The idea behind ETFMG’s stake in tobacco is that eventually, the two industries will begin to show some degree of crossover.

While its biggest holdings are in marijuana companies, the idea behind ETFMG Alternative Harvest ETF’s play in tobacco is that, long-term, this will pay off by giving it increased exposure to growth in the marijuana market.

Formerly MJX ETF, ETFMG has not had the greatest year so far, down about nine percent over the past three months. But that’s to be expected, considering how poorly the industry as a whole has been performing in 2018.

The recent uptick has shot the fund’s value up from $28.00 to about $30.00 in just a few days.

If a recovery is indeed percolating following the string of political wins that marijuana has scored in the news this month, expect to see ETFMG—and marijuana ETFs in general—score a rise in value.

For investors interested in all weed ETFs, not just U.S.-based players, another strong option is Horizons Marijuana Life Sciences ETF (OTCMKTS:HMLSF, TSE:HMMJ-U).

A Canadian-based weed ETF, Horizons Marijuana Life Sciences ETF is the largest active fund in the marijuana market, with almost $700.0 million in assets under management (AUM).

Horizons has a number of similar investments to ETFMG, although Horizons has more exposure to the heavy hitters in the Canadian marijuana market. For instance, over 25% of the Horizons fund’s holdings are wrapped up in Aurora Cannabis stock and Canopy Growth stock.

Horizons does not have any holdings whatsoever in the tobacco market, making it a far more straightforward weed ETF, versus the more daring investments of ETFMG Alternative Harvest ETF.

For those asking how to invest in the HMMJ ETF from the U.S., there are two options: invest on the Toronto Stock Exchange (TSE) or buy over-the-counter shares.

Analyst Take

I firmly believe that a recovery is going to take place in the legal marijuana market. The only question in my mind is the timing.

The recent boon in stock value across the cannabis industry is a result of victories in the White House and among various political figures in the United States. Those gains are substantial, but can at times be fleeting.

If those gains prove to be catalysts to a recovery, now could be the best time all year to get in on marijuana ETFs—before they regain their value and cease to be trading at bargain prices.