Most of us would agree that cannabis is one of the fastest growing industries, both in the U.S. and globally. That does not mean it has not been a stomach churning ride for traders. Marijuana stocks normally have more than double the volatility as the S&P 500 does and total return swings of over 80% have been recorded on multiple occasions. The cannabis exchange traded fund (ETF) space has grown to a total of 10 different funds.
Top ETF Rankings For Cannabis in 2022
The cannabis ETF industry could be lowered to a couple of tiers – the first marijuana ETF that has remained one of the largest, a second ETF that has grown more than the rest, which has experienced a varied degree of success.
The ETFMG Alternative Harvest ETF (MJ) was the very first cannabis ETF to come out on the scene and it was, at least in the early stages, very successful. Assets skyrocketed and initial performance was solid. Whereas it was the only game in town in the beginning, it has since given way to several newer entrants, who have been able to improve on structure and cost.
The AdvisorShares Pure United States Cannabis ETF (MSOS) was the 7th cannabis ETF that had launched, but it has now become the biggest ETF in the space and has captured the #1 spot in these rankings. Why has it become so popular when many of its peers have faltered? I think it is because it was the first cannabis stock that focused on only American cannabis companies. For better or worse, home bias is actually a real thing, and many traders turn away from international stocks, particularly over the past ten years, in favor of what they are used to at home. The international exposure with these ETFs mostly comes from the United Kingdom and Canada to a lesser degree. From a strategic standpoint, the marijuana industry growth rates in the U.S. are expected to surpass those globally, so there is also an argument to be made that the fund’s potential, such as MSOS, is also greater. ETFMG followed up with the ETFMG United States Alternative Harvest ETF (MJUS), which follows a strategy similar to ETFMG, but it has barely made it on to the radar. The #7 spot reflects its higher trading costs and low asset base.
The Amplify Seymour Cannabis ETF (CNBS) is controlled by CNBC personality Tim Seymour and comes in ranked at #2 on this list. While it’s not necessarily seen as a factor in these rankings, CNBS has the advantage of being focused on companies with a more direct exposure to the cannabis industry, meaning it has focused less on things, such as fertilizer and tobacco. It is also actively controlled, an important factor in such a rapidly growing space.
The Cambria Cannabis ETF (TOKE) and the Global X Cannabis ETF (POTX) came in a little later, but these two ETFs are easily the cheapest options within this space, coming in at 0.51% and 0.42%, respectively. Granted, given the high volatility and bust/boom cycles we have seen in marijuana stocks so far, 20 basis points of cost savings is probably negligible, but the businesses are also leaders in the thematic space and have high quality management teams.
Author: Scott Dowdy