Today, AdvisorShares built out its offering of ETFs providing exposure to the cannabis industry, already represented by the global AdvisorShares Pure Cannabis ETF (YOLO) and the AdvisorShares Vice ETF (ACT). The brand-new AdvisorShares Pure US Cannabis ETF (MSOS) concentrates solely on the United States and solely on companies involved in the marijuana and hemp industries.
MSOS comes with an expense ratio of 0.74% and lists on the NYSE Arca.
Like all AdvisorShares ETFs, MSOS is actively managed. It targets small- and midcap U.S. securities, investing in the stocks directly and via total return swaps, according to the prospectus. The document further notes that companies in the fund can operate in the agriculture, biotechnology, pharmaceuticals, real estate, retail and finance sectors.
Avoiding Overexposure To Canada
“This is the first fund in the United States that is going to be focused solely on U.S. cannabis,” said Dan Ahrens, chief operating officer of AdvisorShares, who also manages the portfolio for ACT. The nine existing ETFs focused on cannabis are all global in focus and tend to have large concentrations in Canadian securities.
“I think there’s way too much focus on the Canadian market, which is only a fraction of the size of the U.S. market,” Ahrens said, noting that most Canadian firms are not yet profitable, while many of the U.S. companies are profitable.
“It makes our fund MSOS extremely different from the other typical cannabis ETFs,” he added, pointing out that actively managed YOLO has outperformed the $560 million ETFMG Alternative Harvest ETF (MJ) by underweighting its Canada exposure and investing in multistate operators, which are U.S. companies that are involved in the marijuana industry across multiple jurisdictions that have legalized it. MSOS will offer more exposure to those multistate operators than YOLO is allowed to have, Ahrens says.
Capturing The Growth Story
While the $65 million YOLO is globally focused, Ahrens says the fund could overlap as much as 50% with MSOS but thinks that investors could hold both to get full exposure to the cannabis space. He believes that the fact that the U.S. cannabis market is subject to so many different state laws is part of its growth story.
“The cannabis market in the U.S. is not available in all states. It’s legal in some states, but there’s still additional states [yet] to come online. In fact, most people agree some states are going to come online after the November elections… The very thing that’s the problem in the U.S., that makes it complicated, is also providing all the upside for the future,” Ahrens said.
He cites the level of work that AdvisorShares put into developing the fund due to the complications of the U.S. market, noting years of discussions with the firm’s custody bank and the New York Stock Exchange, as well as navigating the legal requirements and requests of the Securities and Exchange Commission.
"We've been getting a great deal of interest in this fund, and it's not only because it's new and hasn't been done before. There are a lot of investors out there, instutional and individual investors, that, depending on who their brokerage firm or custody firm is, haven't been able to buy shares of these U.S. operators," Ahrens said.
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