Roundhill Debuts Cannabis ETF
‘WEED’ is going live despite its peers struggling.
Roundhill’s latest ETF goes all in on the cannabis theme by launching on 4/20 despite marijuana ETFs struggling over the long term.
The Roundhill Cannabis ETF (WEED) debuted on Cboe Global Markets on Wednesday. It initially charges a 0.59% expense ratio until the end of April 2023, when a 16 basis point fee waiver expires.
WEED is an actively managed ETF targeting companies that produce at least half of their revenues from cannabis- and hemp-related activity. The fund has no limits on company size, liquidity or geography.
The new ETF will rely on total return swaps to get exposure to companies trading on over-the-counter exchanges and outside of the U.S. Lining up counterparties was one of the reasons WEED had been delayed for months after it was initially filed last August, said Roundhill CEO Will Hershey.
The delay was so long that the firm decided to hold off on launching until today, an informal holiday for cannabis enthusiasts.
“It felt like this is a reasonable time frame,” he said. “Why not target this date? What better day to launch a cannabis fund?”
Cannabis as an ETF theme began gathering steam in the final months of 2020 after the U.S. House passed the MORE Act along largely partisan lines. The bill, which would decriminalize marijuana at the federal level, has sat in committee in the Senate since then.
The hype culminated in February after Senate Majority Leader Chuck Schumer said he would prioritize legalization efforts, with the Amplify Seymour Cannabis ETF (CNBS) reaching an astounding 227% return since it launched in July 2019.
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Since then, cannabis ETFs have fallen to net losses over a three-year time horizon, driven in part by little to no news on Capitol Hill toward legalization and growth stocks struggling more broadly.
Schumer originally said his caucus would introduce its own cannabis legalization bill by the end of this month, but last week extended the deadline to the August recess period. Such an extension places the bill at risk of stalling to its death if Republicans win a majority in the Senate as expected.
While Hershey acknowledged the space’s performance has been “quite brutal” in the past few months, he believes the short-term driver of the fund’s performance will come from state-by-state legalization in the U.S. and abroad, with New Jersey’s legalization due to take effect on Thursday.
Hershey also argues cannabis is a growth industry that won’t correlate with the broader growth stocks that have suffered in 2022 because anti-money-laundering provisions ban financiers from lending to the industry.
“A few 100 basis point increase in rates, I think, impacts them less because they're so accustomed to dealing with the lack of the ability to get cheap cost of capital,” he said.
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