Hot ETF Stories This Year: #2 Marijuana

[Editor’s note: The year is still young, but there are already some interesting ETF performance and demand trends in 2021. As February wrapped up, we’ve taken a look at areas that stand out. Today: marijuana ETFs. (Also, read: Hot ETF Stories This Year: #1 Blockchain)]

Investors can’t seem to get enough of marijuana ETFs, pushing these funds to the top of performance charts this year.

The Amplify Seymour Cannabis ETF (CNBS) is currently at the top, outperforming eight competing funds in this segment. (There is also a leveraged strategy). Yes, at times CNBS has ceded its top spot to the competing Global X Cannabis ETF (POTX), but for the purposes of pointing out a big story in ETFs, we’ll focus on CNBS.   

As of late February, CNBS is up 86% year to date. The biggest pot ETF, the ETFMG Alternative Harvest ETF (MJ), is up only 69% in that same time frame.

Chart courtesy of StockCharts.com

Regulatory Thaw Bullish

The overarching picture behind marijuana ETFs is generally positive. Since the U.S. presidential election, a lot of the stocks in this industry have risen significantly in value thanks to expectations of friendly legislation and possible federal legalization of marijuana in the U.S.

Company-specific news, such as relatively strong earnings from producer Tilray earlier this month, have also helped fuel sentiment about pot stocks and their growth prospects globally. 

Consider that Tilray stock prices are up 207% so far in 2021, and the firm’s merger/acquisition target, Aphria, is up 172% in the same time period. The biggest holding in CNBS, for example—GW Pharmaceuticals—is up 86%. The list of impressive stock returns goes on.

It’s also been widely reported that pot stocks, and therefore pot ETFs, have benefited from investor enthusiasm and an uptick in demand, as seen on social media traffic and Reddit trading boards. There’s plenty of banter going on about cannabis these days.   

CNBS is an actively managed portfolio that’s global in scope. The fund is considered pure play due to its requirement that companies derive at least 50% of their revenue from marijuana and hemp businesses, which include companies in any and all parts of the marijuana industry, from production to retail to finance and media.

That said, CNBS is still a pretty concentrated portfolio, with only 22 holdings, and the top 10 represent almost three-fourths of the portfolio.

Demand Not Chasing Top Performer

What’s interesting about the strong performance in pot ETFs, and CNBS specifically, is that demand hasn’t necessarily centered on the winners.

So far this year, amid its impressive rally, CNBS has attracted only about $90 million in net creations, and the fund remains one of the smaller pot funds, with $145 million in total assets.

You could say investors have been particularly keen on chasing the U.S. outlook for the cannabis industry this year—not so much the global opportunity.

The AdvisorShares Pure US Cannabis ETF (MSOS), the only ETF in the bunch to offer U.S.-only exposure, has picked up about $650 million in net new assets this year. That’s not only about 7x the creations seen in performance leader CNBS, it’s almost half the $1.5 billion in net creations seen across the marijuana ETF segment as a whole. 

And that money has flooded in even as MSOS delivers an underwhelming 38% year-to-date gain relative to CNBS’ 86% returns.

Beyond CNBS, other marijuana ETFs include:

• ETFMG Alternative Harvest ETF (MJ), with $2 billion in assets
• AdvisorShares Pure US Cannabis ETF (MSOS), with $1 billion
• AdvisorShares Pure Cannabis ETF (YOLO), with $466 million
• Global X Cannabis ETF (POTX), with $240 million
• The Cannabis ETF (THCX), with $207 million
• MicroSectors Cannabis Index ETN (MJJ), with $55 million
• Cambria Cannabis ETF (TOKE), with $40 million
• MicroSectors Cannabis 2x Leveraged ETN (MJO), with $27 million

Cinthia Murphy can be reached at [email protected]