Pot may be a perfect example of when an exchange-traded note (ETN) makes more sense than an ETF. ETNs don’t have to hold any of the stocks. The notes are unsecured debt obligations that are basically promises to pay the returns of an index. So it doesn’t matter if the stocks are illiquid or not. What matters most is the creditworthiness of the ETN issuer.
ETNs were first introduced 10 years ago for this very purpose—to get into places that were particularly tough for ETFs to track. For example, the iPath India ETN (INP) was launched in 2006 to get around the strict foreign ownership restrictions that made an ETF impossible. It accumulated more than $1 billion within two years.
An ETN issuer could do the same thing, using a self-made pot index or something like the MJIC Marijuana Global Composite Index. The downside to ETNs is there is always risk that the issuer will default, just as with a bond. For investors "jonesing" hard enough for a pot ETF, this may not matter.
The ticker symbol it can't have right now, or presumably ever, is POT. That's already taken by Potash Corp. of Saskatchewan.