AdvisorShares targets US cannabis industry with new active ETF

Sep 3rd, 2020 | By | Category: Equities

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AdvisorShares has introduced a second actively managed cannabis ETF with the launch of the AdvisorShares Pure US Cannabis ETF (MSOS US) on NYSE Arca.

Marijuana Cannabis ETFs

The fund provides exposure to US companies operating in a diverse range of cannabis-related businesses.

The fund sits alongside the AdvisorShares Pure Cannabis ETF (YOLO US) which launched in April 2019 and has grown to approximately $70 million in assets under management.

Both ETFs pursue similar strategies by investing in companies spanning a variety of cannabis-related businesses. YOLO, however, covers North American firms while MSOS focuses exclusively on opportunities within the US market.

Whereas YOLO was the first actively managed cannabis ETF in the US, MSOS is also breaking new ground by becoming the first actively managed US-listed cannabis ETF to target the US marijuana industry.

Each ETF comes with an expense ratio of 0.74%.

According to AdvisorShares, its latest offering caters to investors seeking dedicated exposure to US-based cannabis companies which some analysts believe have the highest growth potential within the marijuana theme.

AdvisorShares highlights several tailwinds specific to the US cannabis industry including a vast, largely untapped market as well as the innovative nature of companies operating within the country. Furthermore, AdvisorShares notes that the trend towards legalization is due to accelerate as the US government seeks to boost tax revenues and create new jobs in order to combat the negative economic effects of the Covid-19 pandemic.

Dan Ahrens, Chief Operating Officer at AdvisorShares, commented, “We are pleased to offer MSOS in addition to YOLO which we believe responds further to meeting investors’ demands for more US cannabis investment exposure. We believe that the US clearly represents the most attractive opportunity for cannabis investment and remains an exponentially larger market than the Canadian cannabis market.”

Investment strategy

YOLO and MSOS invest at least one-quarter of their portfolios in cannabis-related stocks from the pharmaceutical, biotech, and life sciences industry groups.

Other eligible companies are drawn from several industries including agriculture, retail, finance, and real estate (such as REITs that derive revenue from the ownership and management of cannabis growing facilities).

The ETFs also provide exposure to the retail cannabis market. For the US market, this includes multi-state operators – US companies directly involved in the legal production and distribution of marijuana in states where approved.

Firms from any industry may be selected only if they derive at least half their revenue from marijuana-related activities; however, the ETFs may also invest in companies with no sales history that are expected to derive significant future revenues from cannabis operations.

The funds primarily hold small- and mid-cap equities but may also invest in preferred stock and various derivatives to obtain their exposure. Additionally, in a bid to capture returns associated with new entrants into the industry, as well as the high level of merger and acquisition activity, the portfolios may participate in initial public offerings.

Rival ETFs

The launch of MSOS brings the number of cannabis-related ETFs in the US to eight. Only one other fund has accumulated any significant AUM – the $550m ETFMG Alternative Harvest ETF (MJ US). MJ, which was the first marijuana ETF listed in the US, provides passive exposure to the global cannabis industry by tracking the Prime Alternative Harvest Index.

According to AdvisorShares, however, active portfolio management offers the most advantageous way to invest in the emerging cannabis space due to the industry’s ongoing evolution, high levels of innovation, and rapid influx of new companies.

This certainly appears to be borne out in recent performance figures where YOLO has established a notable lead over MJ since the beginning of May. As of the close of trading on 31 August, YOLO is up 7.7% year-to-date, whereas MJ is lagging with a -23.0% loss over the same period.

Cannabis ETFs performance

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