Investors that enjoy cannabis investing via the ETF wrapper rejoice: you’ve got another marijuana ETF to consider. On Tuesday, the aptly named Cannabis ETF (NYSEARCA:THCX) came to market.
The new cannabis ETF’s issuer, Innovation Shares, frames the rookie marijuana fund as the “first passively managed pure-play ETF solution for investing in cannabis.” THCX is the third cannabis ETF to hit U.S. exchanges. The $1.1 billion ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is the seasoned veteran among domestic cannabis ETFs.
New competition to MJ arrived in April when the actively managed AdvisorShares Pure Cannabis ETF (NYSEARCA:YOLO) launched. Today, YOLO has around $60 million in assets under management, making it one of the more successful stories among 2019’s crop of new thematic ETFs.
“As a pure-play cannabis ETF, THCX focuses on companies in the legal marijuana, CBD and hemp industries — the portfolio does not rely on alcohol or tobacco stocks to provide exposure to this burgeoning global growth story,” said Innovation Shares Managing Director Matt Markiewicz in a statement.
The New Cannabis ETF’s Holdings
The new cannabis ETF tracks the Innovation Labs Cannabis Index, a rules-based benchmark that rebalances monthly. Home to 36 stocks, the cap-weighted index has a combined market capitalization of about $80 billion and features 19 licensed Canadian producers and 19 US-listed weed stocks, according to issuer data.
Index components include some more obscure fare, such as The Green Organic Dutchman Holdings Ltd. (OTC:TGODF) and Toronto-listed OrganiGram Holdings Inc. (TSXV:OGI.V). Well-known cannabis names in the benchmark include Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC) and HEXO Corp (NYSE:HEXO), a beaten up Canadian cannabis name.
“The index currently consists of 35 stocks that are expected to benefit from the rise in value of the global cannabis market which is estimated to reach $630 billion by 2040,” according to the index provider.
Combined, THCX’s aforementioned rivals, MJ and YOLO, have almost $1.2 billion in assets under management. That number does not necessarily jibe with investor demand for a marijuana ETF or interest in the cannabis investment theme. However, that theme is still in its early innings, many cannabis stocks are volatile, plenty are not profitable and some investors are simply waiting for the group’s real leaders to emerge while the more financially challenged names peter out.
While a myriad of challenges face cannabis stocks and their investors, scores of data and fundamental factors bode well for the long-term trajectory of the industry, potentially paving the way for more acceptance and assets of cannabis ETFs.
“With several regulatory catalysts on the horizon in the U.S. and abroad, the current cannabis environment presents an exciting opportunity for investors,” said Markiewicz. “One area which has witnessed explosive growth since the signing of last year’s U.S. Farm Bill is the hemp-derived CBD industry. Several of the companies in the portfolio are actively participating in this CBD boom by cultivating hemp, providing extraction services or by using CBD for applications in the pharmaceutical, health and consumer wellness markets.”
The Bottom Line on THCX
Many new ETFs, regardless of underlying investment objective, struggle. And it is clear THCX entered as still small, but highly competitive arena. That said, the new cannabis ETF has something on its side: a low fee. Sort of.
“Sort of” because the rookie cannabis ETF charges 0.70%, per year, or $70 on a $10,000 investment. That is not cheap in ETF terms, but it is expensive relative to the 0.75% charged by MJ and YOLO’s annual expense ratio of 0.74%.
At the very least, THCX’s low fee is likely to catch a few eyes among investors comparing the cannabis ETFs and that should be good to get some capital flowing into the fund.
Todd Shriber does not own any of the aforementioned securities.
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