Innovation Shares, a sponsor of thematic ETFs, has unveiled a new fund that provides passive exposure to firms involved in the cannabis industry.
The fund provides pure-play exposure to North American firms deriving more than 50% of their revenue from the cannabis industry.
The Innovation Shares Cannabis ETF (THCX US) has listed on NYSE Arca and is linked to the proprietary Innovation Labs Cannabis Index.
The index currently consists of 35 stocks from North American-listed companies that derive at least 50% of their revenue from the legal cannabis, hemp, or CBD-based (products that contain cannabidiol) pharmaceutical and consumer wellness markets.
“Our goal in launching THCX is to provide a low-cost and diversified vehicle to meet increasing investor appetite for cannabis-connected stocks,” said Matt Markiewicz, Managing Director, Innovation Shares.
“With the global cannabis market estimated to reach $630 billion by 2040, up from $12bn today, there is an exciting opportunity for investors to participate in this multi-decade growth story through the tax-efficient structure of an ETF.”
Eligible stocks must have a market capitalization of at least $100 million. The index currently does not include companies that grow or distribute marijuana within the US and also avoids tobacco and alcohol stocks – unlike the other two existing marijuana ETFs currently listed in the US.
The index is weighted by market cap with a single component cap of 7%. It is reconstituted and rebalanced monthly which, according to Innovation Shares, helps the fund smooth out some of the longer-term volatility often associated with rapidly expanding industries.
The fund comes with an expense ratio of 0.70% due to a contractual fee waiver in place for at least one year. Its gross expense ratio is 0.95%.
The price tag means the fund is also the cheapest of the three US-listed cannabis ETFs. The $1.1bn ETFMG Alternative Harvest ETF (MJ US) and $60m AdvisorShares Pure Cannabis ETF (YOLO US) come with expense ratios of 0.74% and 0.75% respectively.