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AdvisorShares Files for Marijuana ETF

Sweta Killa

With the marijuana industry poised for rapid growth on increasing legalization, AdvisorShares, one of the largest sponsors of actively managed ETFs, is looking to jump into the space to tap the ongoing boom. This can easily be depicted from the recent filing of the AdvisorShares Pure Cannabis ETF with the Securities and Exchange Commission. The filing follows the Innovation Shares Cannabis ETF (read: Another Cannabis ETF on the Way).

While key information — such as expense ratio and holdings breakdown — was not available in the initial release, other important points were released in the filing. If approved, the proposed fund would trade on the New York Stock Exchange under the ticker YOLO.

Here’s an insight into the filed ETF:

A Glance at the Proposed ETF

The proposed marijuana ETF is actively managed and seeks to invest at least 80% of its net assets in securities of companies that derive at least 50% of their net revenues from the marijuana and hemp industry or that are registered with the DEA specifically for the purpose of handling marijuana for lawful research and development of cannabis or cannabinoid-related products and in derivatives or other instruments that have economic characteristics similar to such securities.

What’s Driving the Move to the Niche Space?

The enthusiasm in the cannabis industry was mainly driven by Canada’s legalization of recreational marijuana effective Oct 17 that paved the way for widespread legality. Recreational marijuana is expected to be legal soon for adults over the age of 21 years in New York, while the European nation of Luxembourg in late November announced that marijuana would soon be legalized for recreational use by adult residents.

All these developments have spurred a large number of deal activities, including mergers and acquisitions in the industry and a wave of weed stock IPOs. Additionally, Trump's $867 billion Farm bill, which legalized cannabis products derived from hemp in America, including products containing cannabidiol (CBD) added to the optimism (read: Why Marijuana ETF is on a High in 2019).

Per an analyst at Cowen, the U.S. legal cannabis industry is expected to reach $80 billion in sales by 2030, surpassing the carbonated soft drink market in 2017. An analyst at Haywood Securities foresees exponential growth in cannabis stocks with the U.S. cannabis market expected to be worth between $15.9 million and $21.7 billion by the year 2022.

ETF Competition & Bottom Line

There is a huge appetite for this fund amid a couple of choices available in the space. ETFMG Alternative Harvest ETF (MJ) — the first and only pure ETF targeting the cannabis/marijuana industry — has accumulated $941.9 million in AUM and charges 75 bps in annual fees (read: 5 Top Performing Stocks of Marijuana ETF).

Another ETF — AdvisorShares VICE ETF ACT — not only targets the cannabis industry but also offers concentrated exposure to “vices” including alcohol and tobacco. It might pose some threat to the proposed fund. ACT invests in companies that derive at least 50% of their net revenues from the marijuana and hemp industry or have at least 50% of their company assets dedicated to lawful research and development of cannabis or cannabinoid-related products. The ETF has amassed $12.3 million and charges 75 bps in annual fees.

The proposed fund, if approved, could give investors another pure play on the cannabis industry. It will not be difficult for the proposed ETF to garner sufficient investor interest in the ongoing green rush and generate decent total returns net of expense ratio (read: What Makes Marijuana ETF the Best Performer in January?).

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