The marijuana industry has provided investors with lots of thrills and spills during the past couple of years, and into this hurly-burly milieu comes the AdvisorShares Pure Cannabis ETF, which launched Thursday and is billed as the first actively managed exchanage-traded fund focused solely on cannabis companies.
Unlike two existing U.S.-listed ETFs with cannabis holdings but that also invest in sectors beyond cannabis, including one from AdvisorShares, this new fund contains no tobacco companies that have bought cannabis-related operations, or beverage companies seeking to spike their products with ganja.
And this ETF comes with the jaunty ticker symbol of YOLO, the acronym for “you only live once.”
YOLO’s portfolio begins trading with 20 mid- and small-cap companies listed in the U.S. and Canada that get at least 50 percent of their net revenue from the marijuana and hemp business. These firms can operate across a range of industries including agriculture, biotechnology, finance, pharmaceutical, real estate, retail, and other medical applications. But a big focus is down on the farm.
“We’re investing in the majority of the large cultivation and agricultural companies based in Canada,” says Dan Ahrens, co-portfolio manager of YOLO, along with Robert Parker. The portfolio includes Aurora Cannabis Inc., Tilray Inc. and Canopy Growth Corp., perhaps the most familiar marijuana names among U.S. investors.
Marijuana is a booming business. Canada last October became the second nation to legalize recreational pot (Uruguay was first in 2013). In the U.S., medical marijuana is legal in 33 states and the District of Columbia, while recreational weed is legal in 10 states and in D.C.
Still, marijuana remains a touchy issue in the U.S. While states are jumping on the legalization bandwagon, it’s still not federally sanctioned. As such, many banks—including those serving as custodians that handle money and perform various back office chores for ETFs—have been leery about getting involved with the marijuana infrastructure.
As a result, Ahrens says, AdvisorShares carefully crafted its case with the Securities and Exchange Commission and with YOLO’s custodian, BNY Mellon, regarding the companies to be included in the fund—all of which trade on the New York Stock Exchange, Nasdaq Stock Market or Toronto Stock Exchange.
“Those exchanges don’t allow companies that do business that’s contrary to federal laws,” Ahrens says.
Wild Ride