Roundhill launches active cannabis ETF

Apr 25th, 2022 | By | Category: Equities

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Roundhill Investments has launched a new ETF providing actively managed exposure to companies within the global cannabis sector.

Roundhill launches active cannabis ETF

WEED is currently the lowest-cost cannabis ETF providing exposure to MSOs.

The Roundhill Cannabis ETF (WEED US) has been listed on Cboe BZX Exchange.

According to BDSA, an analytics firm focused on the cannabis sector, total sales in the global cannabis market are expected to grow to $61 billion by 2026, more than double the $29bn recorded in 2021.

The majority of this growth is expected to come from the US and Canada as consumer access improves amongst legalized states – currently, 37 US states have legalized marijuana for medical use while 18 states and Washington DC have legalized it for recreational use.

Roundhill notes, however, that positive regulatory momentum is evident elsewhere in the world including in Mexico as well as certain European countries such as the UK and Germany.

Will Hershey, CEO of Roundhill Investments, said: “While publicly-listed cannabis companies have recently underperformed, we believe that the cannabis market may be entering an inflection point in terms of both profitability and regulatory momentum. We wanted to provide investors with a comprehensive vehicle to invest in the space, and we believe that WEED has the potential to become the benchmark for the entire sector.”

Investment approach

The ETF invests primarily in common stocks of companies operating in the cannabis and hemp ecosystem, as well as total return swaps that deliver similar exposures.

According to Roundhill, this ecosystem encompasses businesses deriving at least 50% of their revenue from the production, distribution, and marketing of cannabis, hemp, and products derived from them. It spans a wide variety of industries including agriculture, biotechnology, pharmaceuticals, real estate, retail, and finance.

The ETF is also permitted to invest in multi-state operators (MSOs), US companies directly involved in the legal production and distribution of cannabis at the retail level in states where approved.

While the fund may invest across the company size spectrum, chosen constituents will typically be weighted by market capitalization and the portfolio will be constructed so as to approximate the risk characteristics of the entire cannabis market.

The ETF comes with a net expense ratio of 0.59% due to a contractual fee waiver in place until at least May 2023. This price tag makes WEED the lowest-cost cannabis ETF offering exposure to MSOs. The fund’s gross expense ratio is 0.75%.

There are nearly a dozen cannabis ETFs in the US including passive and active funds as well as inverse and leveraged products. The largest of these is the $900m AdvisorShares Pure US Cannabis ETF (MSOS US) which is also actively managed and includes access to MSOs. MSOS comes with an expense ratio of 0.73%.

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