Launched with a lot of buzz late last year, marijuana exchange-traded funds have seen the initial price gains they enjoyed go up in smoke.
Two U.S. exchange-traded funds that include cannabis-related stocks, ETFMG Alternative Harvest ETF (MJ) and AdvisorShares Vice ETF (ACT), are down on the year. A Canadian ETF, Horizons Marijuana Life Sciences Index ETF (HMMJ), which trades on the Toronto Stock Exchange and launched in April, is also weaker.
It’s been a volatile year for the industry, and the industry itself is volatile. Marijuana stocks, and thus the ETFs, often fluctuate on news events, says Jason Wilson, president of Budding Equity Asset Management in Toronto, ETFMG’s partner in the MJ ETF.
While the ETFs came under pressure earlier this year after Attorney General Jeff Sessions rescinded the “Cole Memo,” the Obama-era guidance that let federal officials turn a blind eye to state marijuana laws, they were boosted when Canada said recreational marijuana would become legal in October. However, each Canadian province can dictate how to roll it out, dampening some of that enthusiasm.
The industry is so volatile because it’s only about four years old, dating back to when Colorado saw its first sales of recreational marijuana in 2014, says Daniel Yi, senior vice president of corporate communications and investor relations at MedMen, a leading cannabis dispensary. States where it’s legal, whether medicinally or recreationally, have their own rules, but it remains prohibited elsewhere.
Year-to-date MJ is down 16 percent. Advisors can’t look at one-year or inception date returns because on Dec. 26, 2017, the fund changed from being the Tierra XP Latin America Real Estate ETF (LARE) to the ETFMG Alternative Harvest ETF, changing indexes as well. It has $380 million in assets under management, the bulk of that coming from marijuana investors as MJ started with $6 million when it switched from LARE.
ACT is down 1.27 percent year-to-date and has $13 million in AUM. While MJ follows the Prime Alternative Harvest Index, ACT is an actively managed fund. Both have an expense ratio of 75 basis points.
MJ is the more pure-play cannabis fund. Its top 10 holdings are involved in the marijuana industry and constitute 52 percent of the fund. ACT divides its holdings into 56 percent alcohol, 26 percent tobacco and 18 percent cannabis companies.
MJ is mostly invested in companies in Canada (59 percent) and the United States (25 percent). Its sector breakdown is 50 percent health care, 26 percent consumer non-cyclicals and 12 percent basic materials.
ACT is mostly a U.S. fund, with 76 percent of its holdings domestic. Its top three sectors are 71 percent consumer non-cyclicals, 17 percent health care and 10 percent consumer cyclicals.