Marijuana exchange-traded funds (ETFs) provide investors with exposure to equities of companies that engage in the cultivation, distribution, and sale of marijuana and related products. Products of marijuana companies include dried flowers, oils, seeds, edibles, and more.
Still prohibited as an illegal substance in many parts of the world, marijuana is gaining wider acceptance for both medicinal and recreational purposes. Support for continued legalization is growing, and cannabis is now a multibillion-dollar industry. The global legal marijuana market is expected to expand at a healthy compound annual growth rate (CAGR) of 25.5% through 2030. Marijuana ETFs are a straightforward way for investors to gain exposure to a diversified basket of marijuana equities and profit from this growing industry.
Key Takeaways
- Marijuana equities have significantly underperformed the broader U.S. equity market over the past year.
- The marijuana exchange-traded funds (ETFs) with the best one-year trailing total returns are MJ, MSOS, and YOLO.
- The top holdings of these funds are the ETFMG Sit Ultra Short ETF, GrowGeneration Corp., and the AdvisorShares Pure US Cannabis ETF, respectively.
Four marijuana ETFs trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). The marijuana sector, as measured by the Global Cannabis Stock Index, has dramatically underperformed the broader U.S. stock market over the past 12 months, with a one-year price change of -72.4% compared to the S&P 500’s one-year trailing total return of -3.7% as of Aug. 10, 2022. The best-performing marijuana ETF, based on performance over the past year, is the ETFMG Alternative Harvest ETF (MJ).
We examine the three best marijuana ETFs below. All numbers below are as of Aug. 11, 2022.
- Performance Over One Year: -64.8%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 1.56%
- Three-Month Average Daily Volume: 1,174,512
- Assets Under Management: $424.7 million
- Inception Date: Dec. 3, 2015
- Issuer: ETFMG
MJ is the first ETF to focus on the global cannabis industry and tracks the Prime Alternative Harvest Index. The gauge tracks the performance of companies within the global cannabis industry that are benefiting from the growth, marketing, and sale of cannabis products for medicinal and recreational use. Like other cannabis ETFs, investors should note that the fund’s large number of thinly traded small-cap stocks raises the issue of whether there might be sufficient liquidity to absorb money flows without distorting prices. Since marijuana is still illegal under federal law in the U.S., MJ’s portfolio is dominated by Canadian cannabis companies.
The fund’s top three holdings are ETFMG Sit Ultra Short ETF (VALT), an actively managed ETF focused on short duration, investment-grade debt securities of various maturities; Tilray Brands Inc. (TLRY), a Canada-based provider of medical cannabis; and Cronos Group Inc. (CRON.TO), a Canada-based cannabis research and technology company.
- Performance Over One Year: -66.4%
- Expense Ratio: 0.73%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 1,234,661
- Assets Under Management: $642.7 million
- Inception Date: Sept. 1, 2020
- Issuer: AdvisorShares
MSOS is an actively managed fund that focuses on owning U.S. cannabis companies, including multi-state operators (MSOs) that are involved in diverse parts of the industry. The ETF seeks long-term capital appreciation. The companies in the ETF’s portfolio must be registered with the U.S. Drug Enforcement Administration (DEA) for dealing with marijuana for lawful research and the development of cannabis or cannabinoid-related products. The holdings of MSOS may focus on areas like real estate investment trusts (REITs), healthcare, hydroponics, and pharmaceuticals.
MSOS also uses swap contracts to provide exposure to the cannabis sector, which may increase volatility. The fund’s top three stock holdings are GrowGeneration Corp. (GRWG), a hydroponic and organic specialty gardening products retailer; Innovative Industrial Properties Inc. (IIPR), a REIT focused on the cannabis industry; and Ayr Wellness Inc. (AYR-A.CN), a maker and retailer of branded cannabis products.
- Performance Over One-Year: -68.9%
- Expense Ratio: 0.76%
- Annual Dividend Yield: 0.22%
- Three-Month Average Daily Volume: 64,148
- Assets Under Management: $77.9 million
- Inception Date: April 17, 2019
- Issuer: AdvisorShares
YOLO is an actively managed ETF that seeks long-term capital appreciation by investing in both domestic and foreign cannabis equities. It invests in small- and mid-cap global companies that derive at least 50% of their revenue from the marijuana and hemp industry. Like MSOS above, companies must be approved by the DEA to use marijuana for legal research and the development of cannabis or cannabinoid-related products.
YOLO is designed to take advantage of the cannabis industry’s long-term growth and may be ideal for a buy-and-hold portfolio. It also allocates at least 25% of its portfolio to biotechnology, pharmaceuticals, and life sciences companies. The fund’s top three holdings are AdvisorShares Pure US Cannabis ETF (MSOS), described above; Village Farms International Inc. (VFF), a Canada-based grower of tomatoes, bell peppers, cucumbers, and cannabis; and Innovative Industrial Properties Inc.
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