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We have been critical of the cannabis ETFs for a while, and they are all down hard in 2023:
Today, we want to take a close look at some cannabis ETFs and to explain again why investors should not invest in ETFs if they want to invest in cannabis.
AdvisorShares Pure US Cannabis ETF (MSOS), at just over $300 million, continues to have the same challenge that we have highlighted: It is poorly diversified, with over 47% in two names, GTI and Curaleaf. The top 6 holdings approximate 87%, and this is out of line with their economic contribution to the industry and their market caps. The ETF has no stated index. We remain concerned that potential redemptions could fuel selling of the six largest holdings, especially the largest two.
In the past, I suggested that Amplify Seymour Cannabis ETF (CNBS), only $24 million, might be a better ETF than MSOS, and it has been in 2023, but it’s not doing a good job on stock selection. I like that it’s not as concentrated as MSOS, but its top two holdings are Curaleaf and Tilray. We don’t believe that either of these stocks should be owned by investors right now.
ETFMG Alternative Harvest ETF (MJ), at about $200 million, is down the most, and the security selection there is challenging. Over 12% of the ETF is in two large Canadian LPs that worry us, Canopy Growth and Tilray, and about 47% is in its own fund, ETFMG Alternative Harvest ETF (MJUS). This fund is mainly held by MJ, and it has about 26% in Curaleaf and GTI.
This has been a tough year for cannabis investors, as the New Cannabis Ventures Global Cannabis Stock Index set a new all-time low this past week and is down 24.4% year-to-date. We think that the market is just for long-term investors right now, and these ETFs aren’t the right way to invest in the cannabis market. Investors can save on the fees that are embedded in the ETFs and build more diversified portfolios, or they can load up on better stocks if they want to do so.
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Alan & Joel