Competition Heats Up For Marijuana ETFs

February 08, 2019

Good Time To File?

The political environment may be good for marijuana ETFs in more ways than one, given the recent government shutdown (and the potential one looming on the horizon).

All three of the proposed marijuana ETFs would be launched from existing trusts—a technical point of procedure that may impact their likelihood of coming to launch.

When an existing ETF issuer, one that has already secured exemptive relief and the approval to establish a trust from the SEC, wants to launch new funds, it usually does so by filing for a "post-effective amendment" to the trust. Barring SEC comment, the funds proposed in these post-effective amendments often become automatically effective after some waiting period, usually 60 or 75 days.

However, given that the government shutdown has generated a tremendous backlog for the agency, it is unclear how likely if or when that SEC comment would come—not just for marijuana ETFs, but for all proposed funds (read: "SEC Shutdown's Impact On ETFs").

That's not to suggest issuers are attempting to skirt SEC scrutiny; after all, both AdvisorShares and Amplify could have filed their funds during the shutdown, but chose not to. (Innovation Shares filed before the shutdown began.)

However, with the SEC so overtasked, and with less pressure from a Justice Department eager to persecute marijuana-related crimes, this may in fact be the perfect moment to bring these more controversial funds to launch. Only time will tell.

Similarities Among Filings

Both the AdvisorShares and Amplify proposals would be actively managed, while the Innovation Shares proposal would be indexed. None of the three proposals has yet specified an expense ratio.

What's more, none of the three ETFs have yet named a custodian, transfer agent, accounting agent or fund administrator. Whether or not the firms would use the same service providers listed for other funds within the same trust is unclear.

The Innovation Shares fund would track U.S. and Canadian companies involved in the cannabis, hemp and cannabidiol industries, including pharmaceutical firms, consumer wellness and product markets.

Meanwhile, the AdvisorShares fund would invest in companies that derive at least half their net revenue from the marijuana and hemp industries, or firms registered with the DEA to conduct cannabis-related medical product research and development. Intriguingly, AdvisorShares also reserves the right to invest in initial public offerings, in addition to the usual menu of equities and derivatives.

Finally, the Amplify fund would track companies engaged in three different sectors of the global cannabis/hemp ecosystem: industries based on the cultivation, sale and production of the cannabis/hemp plant; supporting industries such as agricultural technology or real estate; and ancillary industries such as consumption devices.

The fund would be managed by Tim Seymour, head of Seymour Asset Management and host of CNBC’s Fast Money.

Contact Lara Crigger at [email protected]

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