New Marijuana ETF On The Way

April 16, 2019

What YOLO Can & Cannot Hold

YOLO will primarily invest in the stocks of mid- and small-cap cannabis companies, but the portfolio managers have sweeping discretion to invest in a range of other securities, including derivatives, swaps, futures, other ETFs and even IPO opportunities, according to the fund's prospectus. (The starting portfolio is 100% equity, however.)

"Especially in the rapidly growing, rapidly evolving cannabis space, there are going to be many new companies coming to market, and a lot of merger and acquisition activity," said Ahrens. "As active managers, we want to be able to move quickly."

However, YOLO's prospectus invokes several restrictions placed on what constitutes a cannabis-related business. The fund can't invest in companies with operations inside the U.S. unless that company is also legal at a federal level, nor will it invest in companies whose businesses are legal at state or local levels, but not federally.

Furthermore, the fund is currently limited to stocks trading on the NYSE, Nasdaq, Toronto Stock Exchange and TSX Venture exchanges.

Restrictions To Smooth Approval Process

These restrictions are the result of a year's worth of conversations between AdvisorShares and BNY Mellon, as well as back-and-forth with the Securities and Exchange Commission (SEC).

Ahrens says AdvisorShares also worked with its custodian to devise a list of preapproved securities in which the portfolio managers could invest for YOLO. The company did something similar for the cannabis stocks in ACT.

That list was also provided to the SEC, as well as a full legal opinion (by request) and due diligence on each of the securities in the investable universe from an outside law firm.

"We took a lot of aggressive steps to do our due diligence and get this fund approved legally and properly," said Ahrens.

Undercutting Competition

YOLO will have total annual expenses of 0.74%, breaking down to a 0.60% management fee and 0.14% for "other expenses," including costs for fund administration, accounting, custody fees, exchange listing fees and so on.

That puts YOLO's expense ratio at 0.01% less than that of MJ.

Contact Lara Crigger at [email protected]

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