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A Second Marijuana ETF Ignites

ETF Professor

Just before the arrival of 4/20, the annual celebration of cannabis indulgences, U.S. investors were treated to the second dedicated marijuana exchange traded fund.

As was reported earlier this week, the AdvisorShares Pure Cannabis ETF (NYSE: YOLO) debuted Thursday, April 18, becoming the second cannabis ETF to list in the U.S.

What Happened

Since late 2017, the ETFMG Alternative Harvest ETF (NYSE: MJ), has been the only dedicated marijuana ETF available to U.S. investors. The fund holds $1.18 billion in assets under management. 

There are several points separating the newly minted YOLO from the established MJ, including the fact that YOLO is the first U.S.-listed ETF to have “cannabis” in its name and the first ETF to trade in New York that was born as a dedicated marijuana fund. That was not the case with MJ.

Why It's Important

YOLO is also actively managed, while MJ is a passive index fund. The new fund's managers also manage the AdvisorShares Vice ETF (NASDAQ: ACT), which allocates up to a quarter of its weight to cannabis equities. ACT is up 15.56 percent year-to-date.

YOLO “seeks long-term capital appreciation by investing in both domestic and foreign cannabis equity securities,” according to Maryland-based AdvisorShares. “YOLO is designed to fully invest for pure cannabis exposure under the guidance of a deeply experienced portfolio management team navigating the emerging cannabis marketplace.”

YOLO will typically hold up 40 stocks and focus and mid- and small-cap cannabis companies. The new YOLO holds shares of some companies found in MJ, including Aurora Cannabis Inc. (NYSE: ACB), Canopy Growth Corp. (NYSE: CGC) and Tilray, Inc. (NASDAQ: TLRY).

YOLO holdings such as Innovative Industrial Properties (NYSE: IIPR) and Village Farms International, Inc. (NASDAQ: VFF) are making their first appearances in a marijuana ETF.

What's Next

YOLO cannot invest in U.S.-based companies unless those companies businesses are legal at the federal level. Even with the many regulatory hurdles faced by would-be issuers of cannabis ETFs, MJ's success indicates there is appetite for these products.

With an annual fee of 0.74 percent, or $74 on a $10,000 investment, YOLO is one basis point cheaper than MJ. That could work in the new ETF's favor if investors are looking to save every penny possible when evaluating weed ETFs.

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