How To Invest In Bitcoin & Marijuana ETFs

July 10, 2017

What do bitcoin and marijuana have in common? You might be able to think of more than one answer to that question, but here's the most salient for investors: Neither is available in an ETF wrapper in the United States.

That's not too surprising. Bitcoin has only recently entered mainstream consciousness and has a reputation for being a volatile, unregulated asset. Meanwhile, marijuana, while gaining acceptance in some states, is still illegal to possess, according to federal law in the United States.

In that context, it's not a shock that there's no bitcoin or marijuana exchange-traded products listed on U.S. exchanges―at least not yet―though it's not for want of trying.

SEC’s High Hurdle

Three bitcoin ETFs that have attempted to come to market, the most famous of which is the Winklevoss Bitcoin ETF, which has so far been dismissed by the Securities and Exchange Commission. There's also a marijuana ETF in registration, the Emerging AgroSphere ETF, but it too has yet to be approved by the SEC.

Until those ETFs or something similar comes to fruition, investors who want to buy into bitcoin or marijuana don't have any ETF options—that is, unless they venture outside of the U.S.

This brings up another commonality that bitcoin and marijuana share―both are available to invest in through ETFs outside the country. Here we take a look a look a few of those foreign ETFs that adventurous investors may wish to consider.

From Bitcoin Hedge Fund To ETNs

The Bitcoin Tracker One (COINXBT) is the first exchange-traded product that tracks the price of bitcoin. It's a krona-denominated exchange-traded note listed on the Nasdaq OMX in Sweden, along with its sister product, the euro-denominated Bitcoin Tracker Euro (COINXBE).

The origins of these exchange-traded notes are interesting. The current owner of the notes originally ran a bitcoin hedge fund based in Jersey- Channel Islands. That group ended up buying the issuer of the notes from KNC Miner, a now-bankrupt bitcoin mining firm that couldn't compete with Chinese companies.

 

KNC Miner was using the notes to sell the bitcoins they mined on the open market. When the miner filed for bankruptcy in June 2016, Global Advisors (Jersey) Limited acquired the issuer and took over the note issuance program. 

Since the acquisition, assets for the issuer have quickly ballooned from about $10 to $15 million to $100 million thanks to strong demand from investors in Germany and the U.S.

 

The ETNs Have Tracked Bitcoin Closely This Year...

 

Unlike the Securities and Exchange Commission in the U.S., which has yet to approve a bitcoin ETF, the Swedish regulatory authorities have been "very open to the concepts of bitcoin and cryptocurrencies in general," said Ryan Radloff, head of investor relations for issuer XBT Provider. His firm has plans for many new products in the cryptocurrency and digital asset space in the future.

Though they don't market to investors in the U.S., anyone interested in buying the ETNs can do so via a global securities electronic trading platform with access to the Nasdaq OMX.

Legal Marijuana In Canada

Like the bitcoin ETF, a marijuana ETF has yet to be listed in the U.S., though the Emerging AgroSphere ETF is in the pipeline. However, that fund may have a tough time getting approved―according to Steven Hawkins, president and co-CEO of Horizons ETFs Management―because of the illegality and stigma associated with marijuana in the U.S.

Horizons is primarily a Canadian ETF company, with 77 strategies listed in the country, including the Marijuana Life Sciences Index ETF (HMMJ), which trades on the Toronto Stock Exchange.

 

It made sense to launch HMMJ in Canada, because medical marijuana in the country is legal at the federal level (and recreational marijuana will soon be too), while in the U.S., it's only legal in certain states, notes Hawkins.

Getting a marijuana ETF listed on a major U.S. exchange "would be highly improbably in today's current regime," he explained. Moreover, there are no marijuana producing or distributing companies listed on major exchanges in the U.S., whereas in Canada there are many.

Because of that, "there's a lot more 'federally legal' companies in Canada that we could invest in," Hawkins remarked, while also noting that U.S. marijuana companies are technically operating illegal businesses on a federal level.

Strong Flows For New ETF

HMMJ invests in marijuana operating companies, which are primarily Canadian. But it also holds several U.S. companies that have ancillary marijuana-related businesses and biopharmaceutical companies that are working on cannabinoid-based drugs.

Demand for the ETF has been strong, with assets under management currently around $83 million after just three months on the market.

 

After A Brief Pop, HMMJ Falls After Its Debut...

 

Hawkins doesn't foresee medical marijuana or recreational marijuana being approved in the U.S. at the federal level "for a very long time," which limits the exposure HMMJ can get to the country. But that's going to spur the growth of the marijuana industry in Canada, in his view, providing a lot of upside potential for the fund.

Horizons doesn't market its product to U.S. investors, but it can still buy the fund through brokerages that offer access to Canadian securities.

Contact Sumit Roy at [email protected]

 

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