The Stealth Marijuana Play In Your ETF

January 30, 2018

Another seven "marijuana related" names touch the industry in some way: drug companies that devote some, but not all, of their resources to cannabinoids; biotech firms like 22nd Century Group, whose subsidiary Botanical Genetics genetically engineers proprietary pot strains; and so on. (The marijuana-related stocks in MJX and ACT are listed in Table 1.)

While some crossover in marijuana holdings exists between MJX and ACT, it's actually not all that much. (That's not counting the tobacco, alcohol and fertilizer firms both funds use to plump up their portfolios; across those nonmarijuana stocks, there's quite a bit of crossover indeed.) Instead, MJX invests primarily in foreign marijuana companies, especially Canadian ones.

It's true that these companies are legal in the U.S., in that they aren't illegal; being foreign companies, they fall outside the Department of Justice's jurisdiction. (And, of course, all the stocks MJX holds operate legally within their countries of origin.) So ETFMG is doing nothing wrong by investing in them. But it also reminds me of an old Futurama quote: "You are technically correct—the best kind of correct." 


Marijuana Companies In MJX & ACT

Pure-Play Marijuana Companies Marijuana-Related Companies
Cronos Group Inc Insys Therapeutics, Inc.
Aurora Cannabis Inc. 22nd Century Group, Inc.
Canopy Growth Corporation Arena Pharmaceuticals, Inc.
Medreleaf Corp. Cara Therapeutics Inc
CannTrust Holdings, Inc. AbbVie Inc (ABBV)
CanniMed Therapeutics, Inc. Catalent Inc (CTLT)
Emerald Health Therapeutics, Inc. Abbott Laboratories (ABT)
GW Pharmaceuticals PLC Sponsored ADR  
Supreme Cannabis Company Inc  
OrganiGram Holdings Inc  
Corbus Pharmaceuticals Holdings Inc  
Isodiol International Inc  

Source: data as of Jan. 26, 2018


Which ETFs Hold Pot Stocks?

I ran these 19 stocks through ETFdb's ETF Stock Exposure Tool to see which other nonmarijuana ETFs held them. (Two companies on this list, CannTrust Holdings and Isodiol International, are traded over-the-counter, and thus do not appear in the lookup tool.)

The results were eye-opening.

Let's start with the pure plays. An additional 40 ETFs hold pure-play marijuana stocks. Mostly these companies appear in trace amounts—but not always (see Table 2).


Top 10 ETFs With Exposure To Pure-Play Marijuana Companies

Fund  Ticker %
IQ Canada Small Cap ETF CNDA 5.89
AlphaClone International ETF ALFI 2.52
ALPS Medical Breakthroughs ETF SBIO 2.49
Global X Guru International Index ETF GURI 2.03
VanEck Vectors Pharmaceutical ETF PPH 1.66
Virtus LifeSci Biotech Clinical Trials ETF BBC 1.16
SPDR S&P International Small Cap ETF GWX 0.49
ProShares UltraPro Short Nasdaq Biotechnology ZBIO 0.47
ProShares UltraShort Nasdaq Biotechnology BIS 0.47
iShares NASDAQ Biotechnology ETF IBB 0.47

Sources: ETFdb,


At 5.89%, the IQ Canada Small Cap ETF (CNDA) dedicates the highest proportion of its portfolio to pure-play marijuana companies. Its weighting is driven by two holdings: Canopy Growth and Aurora Cannabis, which are also CNDA's first- and second-largest holdings, respectively.

The AlphaClone International ETF (ALFI), meanwhile, replicates international hedge fund strategies; it holds 2.52% of its portfolio in one big pot player: GW Pharmaceuticals. The ALPS Medical Breakthroughs ETF (SBIO) has 2.49% in the same stock, which is also one of the fund's top 10 holdings.

When you think about it, the presence of marijuana companies in these ETFs makes sense. Marijuana companies have seen remarkable growth in the past year; the share price of Canopy Growth has tripled year-over-year, while Aurora Cannabis is sevenfold higher. If I'm building a small-cap Canada fund or a medical breakthroughs ETF, why wouldn't I include such obvious outperformers?


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