Today AdvisorShares is rolling out the first U.S.-listed ETF to offer exposure to securities involved in the legal marijuana industry, including hemp- and cannabinoid-related companies. The actively managed AdvisorShares Vice ETF (ACT) also invests in stocks involve in the tobacco and alcohol industries.
ACT comes with an expense ratio of 0.75% and lists on the Nasdaq exchange.
The fund was in development for some time, and getting it to the point of launching required extensive conversations with listing banks, exchanges and the SEC, according to AdvisorShares Managing Director and Chief Operating Officer Dan Ahrens, who is also ACT’s manager.
“We actually had a number of people contact us over the past year and a half or more and suggest wanting to do a cannabis- or marijuana-related fund. We invariably had to tell them no—there’s simply not enough to invest in that’s legal, listed, large and liquid. It simply wouldn’t work in the United States,” he said.
However, Ahrens had previously managed a successful “vice” mutual fund, and the idea of something similar had been on AdvisorShares’ radar for some time.
“Once we really started to look at the numbers and thought about combining these things, it made sense,” Ahrens said of combining the marijuana exposure with that of alcohol and tobacco. He points out that alcohol and tobacco are recession-resistant, while the biotech and pharmaceutical companies associated with legal marijuana exposure are more growth-oriented.
The alcohol and tobacco exposure of the fund also serve as a balance to the marijuana-related stocks.
“I’d be leery of investing straight into 100% cannabis or marijuana, even in what’s legal,” Ahrens said. “There’s going to be some land mines out there. There’s going to be some extreme volatility. That’s not really what we’re looking for, and that’s why we think active management is important.”
The 40-50 companies in the fund are all U.S.-listed securities and can include American depositary receipts. They all must derive at least 50% of their net revenues from the targeted industries. The fund’s holdings can include companies from across the market-cap size spectrum, according to the prospectus.
According to Ahrens, the stocks in the portfolio will be selected based on technical data, analyst rankings and any other sources deemed relevant. At least a quarter of the portfolio will be invested in the food, beverage and tobacco industry, a subset of the consumer staples sector. Also, the fund can invest in companies that the fund’s managers believe have or will have revenues cannabis-related operations.
The prospectus notes that it will draw its holdings from the agriculture, biotechnology, pharmaceutical, real estate, retail and finance industries, among others. The fund’s manager believes that social and legislative developments will lead to growth for companies involved in the marijuana industry.
“We’re excited about it being the first of its type in the U.S.” Ahrens said.
But ACT will soon have a competitor when it comes to offering marijuana industry exposure. ETF Managers Group has filed to convert its Latin America real estate ETF, the Tierra XP Latin America Real Estate ETF (LARE), into the marijuana-focused Alternative Agroscience ETF as of Dec. 26.
Contact Heather Bell at [email protected]