On Friday afternoon, as the markets were getting set to close, the ETFMG Alternative Harvest ETF (NYSE ARCA: MJ), which is managed by ETF Managers Group, rebalanced its $1.05 billion cannabis-focused ETF. Their website now enables investors to see the moves that they made by comparing the holdings at present as well as the ones previously. Note that that there is somewhat of a delay in reporting, perhaps based on settlement date rather than trade date, as the columns in the table below are for “8/12” and the most recent date, “8/13”:
The list is sorted by the percentage change in the holdings, but it’s important to compare the second-to-last column with the average daily trading volume of the stock. For instance, a reduction of 122K shares of GW Pharma is rather meaningless given its liquidity, but the sales of stakes in Vivo Cannabis (TSXV: VIVO) (OTC: VVCIF), Auxly Group (TSXV: XLY) (OTCL CWBHF) and Supreme Cannabis (TSX: FIRE) (OTC: SPRWF) were quite meaningful, as was the additions of MediPharm Labs (TSX: LABS) (OTC: MEDIF) and, especially, CannTrust (TSX: TRST) (NYSE: CTST). The late sale in VIVO Cannabis, for example, represented more than 2X the typical daily trading value in the stock. This is the price action on Friday:
Beyond the irresponsibility of doing such large trades late in the afternoon on a summer Friday, one must question the wisdom of adding to CannTrust, given the issues that the company is facing. At present, it represents 3.8% of the ETF. Of course, this isn’t a fundamental decision, as the ETF tries to match its index, which also has a a similar-sized position in the name.
We have written frequently about the pitfalls of the ETFs in the cannabis space, suggesting that for most investors, they aren’t a great option. The exception is for those with small amounts to invest and who seek diversification. For others, save the 0.75% per year and pick your own stocks. It’s not that difficult to create a diversified portfolio, and we remind readers that these ETFs are very heavily weighted towards Canadian LPs while neglecting U.S. operators and ancillary providers.
After this inept move by ETFMG, we suggest that those who do decide to invest in one of the larger cannabis ETFs, Horizons Marijuna Life Sciences ETF (TSX: HMMJ) (TSX: HMMJ.U) (OTC: HMLSF) is a smarter choice. That ETF is a lot more pure, not watered down with names that aren’t involved in cannabis, as is the case for many of the holdings in MJ.