[Editor’s note: Join us for a complimentary webinar, “The Case for Cannabis ETFs,” on Tuesday, July 9, at 2 p.m. ET.]
Competition among marijuana ETFs is intensifying. Today Innovation Shares launched The Cannabis ETF (THCX), trading on the NYSE Arca.
This comes days after a fourth fund, the Amplify Seymour Cannabis ETF (CNBS), went effective. The ETF, which will also trade on NYSE Arca, is expected to launch sometime in the next week.
THCX = Lowest Cost, No Tobacco
THCX tracks the Innovation Labs Cannabis Index, a rules-based index of “cannabis companies” that rebalances monthly. Cannabis companies are defined as companies deriving at least 50% of their revenues from the legal marijuana or hemp industries. Potential securities are screened for size and liquidity constraints.
As of launch, the fund holds 35 names, including most of the major marijuana stocks. The top three stocks were Canopy Growth (8%), Aurora Cannabis (8%) and Cronos Group (8%). Currently the fund holds no stocks that grow or distribute marijuana within the U.S., but it may hold hemp-based pharmaceutical and consumer wellness and product companies operating inside the U.S.
No Tobacco/Alcohol Stocks
Unlike the other two funds currently on the market, the $1.1 billion ETFMG Alternative Harvest ETF (MJ) and the $59 million AdvisorShares Pure Cannabis ETF (YOLO), THCX has no exposure to tobacco or alcohol stocks.
Also, the fund’s total expense ratio is 0.70%, after the application of a 0.25% fee waiver, which is expected to be in place for one year.
That makes THCX the cheapest marijuana ETF on the market, undercutting YOLO by 0.04%. (MJ has an expense ratio of 0.75%.)
CNBS Secret Sauce: Active Management
But THCX isn’t the only cannabis ETF coming to market. Amplify is prepping to launch its own marijuana fund this week or next.
According to CNBS’ prospectus, amended last Friday, the ETF will invest at least 80% of its assets in companies that derive half or more of all revenues from the cannabis and/or hemp industries.
This ecosystem is further broken down into three categories: companies that touch the cannabis/hemp plant, including pharmaceutical/biotech firms and retail; support companies, such as agricultural technology and real estate; and ancillary companies, such as makers of consumption devices or investment and financial firms.
The CNBS fund is actively managed by Tim Seymour, an expert in cannabis investing, and a CNBC contributor. Seymour is also founder and chief investment officer of Seymour Asset Management.
Different Securities Mix
Securities will be selected by a combination of top-down and bottom-up analysis, factoring in regulatory changes and macroeconomic data as well as individual company balance sheets and growth rates. Potential securities are also subject to size and liquidity constraints, and their activities must be legal in the country in which they are incorporated and operate.
As of Friday, the fund, which will hold 35-45 names, is not expected to hold any companies that grow or distribute marijuana in the U.S., or any “medical marijuana” firms.
CNBS will have a total expense ratio of 0.75%, after a fee waiver that drops its total expense ratio by 0.04% for at least one year.
Contact Lara Crigger at [email protected]
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