Roundhill Investments has made changes to the Roundhill Cannabis ETF (WEED US), refocusing the fund’s investment strategy and slashing its expense ratio.

WEED is currently the lowest-cost cannabis ETF globally.

Previously, the actively managed fund would invest in a diverse range of companies operating in the cannabis and hemp ecosystem including firms from industries such as agriculture, biotechnology, pharmaceuticals, real estate, retail, and finance.

Moving forward, the ETF will exclusively target the largest and most-liquid US multi-state operators (MSOs), US companies directly involved in the legal production and distribution of cannabis at the retail level in states where approved.

Due to current challenging macroeconomic conditions, including high interest rates and persistent inflation, Roundhill believes that the cannabis companies with the lowest costs of capital and strongest relative balance sheets are best positioned to survive a downturn and increase market share.

According to Roundhill, Tier 1 MSOs, defined as US cannabis companies generating in excess of $500 million in annual revenues, most closely align with this view.

As of 11 October, the ETF had concentrated exposure to six MSOs: Curaleaf Holdings (34.5%), Green Thumb Industries (20.3%), Trulieve Cannabis (17.2%), Verano Holdings (14.4%), Cresco Labs (8.7%), and Columbia Care (4.2%).

In terms of price, the ETF has seen its net expense ratio cut from 0.59% to 0.39% until at least the end of April 2023.

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 $590m 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%.