The AdvisorShares Pure Cannabis ETF (YOLO) is that relatively rare exchange-traded fund (ETF) that's gaining attention from penny stock traders, with its price hovering under $5 per share.
This ETF provides a gateway into the cannabis market, which has been buzzing with activity lately. The DEA's pending decision to potentially reschedule marijuana to a less harmful category has given cannabis stocks a boost, particularly as more states move to expand adult use. YOLO, for instance, has racked up an 11.9% gain this year.
Could a Harris Presidency Boost Cannabis Stocks?
Earlier this year brought the start of limited adult use in Germany, a major European market. Adding to the excitement here in the U.S., Vice President Kamala Harris has become a strong advocate for cannabis reform. As the presidential nominee, her support for changes in federal cannabis laws could be a game-changer for companies with a foothold in the domestic industry.
Over the years, Harris has shifted from a more conservative position to becoming a strong advocate for marijuana legalization. This change is evident in her support for key legislative efforts such as the SAFE Banking Act and the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which seeks to decriminalize marijuana at the federal level, expunge certain cannabis-related convictions, and promote social equity in the industry.
Beyond the impact of any policies from a potential Harris presidency, the proposed reclassification of marijuana from a Schedule I to a Schedule III drug could significantly reduce the tax burdens on cannabis businesses, making the industry more attractive to investors. Plus, technological advancements such as blockchain and artificial intelligence (AI) are expected to revolutionize supply chain management and compliance tracking, further enhancing operational efficiencies within the sector.
The cannabis market is also set to benefit from product innovations and the expansion of legal markets. The trend towards personalized cannabis products is gaining traction, as consumers become more educated and discerning in their choices. Moreover, states like Kentucky are finalizing details to enter the market, contributing to the projected U.S. growth to $53.5 billion by 2027.
With these developments as a backdrop, the cannabis industry looks poised for growth, as years of regulatory overhang could finally be poised to clear in a meaningful way. YOLO might still be a speculative play, but for those willing to stomach the volatility, this ETF offers a chance to tap into the potential growth of the cannabis industry, while mitigating some of the risk involved in single-stock investments.
Overview of AdvisorShares Pure Cannabis ETF
The AdvisorShares Pure Cannabis ETF (YOLO), launched on April 17, 2019, is an innovative exchange-traded fund that provides investors with exposure to the cannabis industry. It is actively managed, meaning that the fund manager selects and manages a portfolio of cannabis-related stocks, rather than tracking a specific index. Unlike its U.S.-focused counterpart, YOLO invests in both domestic and foreign cannabis equities, as well as total return swaps of similar securities.
The ETF's assets under management (AUM) stand at $45.15 million, making it a smaller player among an already-small ETF niche. YOLO isn't the most actively traded cannabis ETF, either, with its average volume around 48,000 shares a day. Likewise, while the fund is optionable, trading puts and calls on YOLO is not for the faint of heart; volume is thin enough to result in extremely wide bid/ask spreads.
With YOLO down 89% from its February 2021 highs, YOLO now trades in penny stock territory, below $5 per share. However, the ETF has demonstrated resilience since setting a record low last October, up 42% since then. This suggests that YOLO's long slide just may have found bottom.
In fact, the current Net Asset Value (NAV) of YOLO is reported at $3.52, suggesting the ETF is trading at a discount right now - and offering an attractive entry point for prospective investors.
For income investors, YOLO offers a dividend yield of 1.70%, based on its annualized dividend of $0.06. While not a high-yield play, this quarterly dividend adds a little more appeal to the ETF's growth potential.
What's the YOLO Strategy?
YOLO's strategy focuses on providing investors with actively managed exposure to the global cannabis ecosystem. The fund's portfolio includes a mix of companies involved in various aspects of the cannabis industry, from cultivation and retail to ancillary services and biotechnology.
In fact, leading the portfolio is none other than the AdvisorShares Pure U.S. Cannabis ETF (MSOS), which constitutes a hefty 39.94% of the fund. Top holdings of that ETF, for the record, include Green Thumb (GTBIF), Trulieve Cannabis (TCNNF), Curaleaf (CURLF), Verano (VRNOF), and Cresco Labs (CRLBF).
Next up behind MSOS in the YOLO ETF is Village Farms International Inc. (VFF) at 8.72%, and High Tide Inc. (HITI) at 8.19%. Sndl Inc. (SNDL) makes up 6.90% of the ETF, while biotech Cardiol Therapeutics (CRDL) rounds out the top five with a 6.49% allocation. This strategic approach, ranging from cultivators to biotechs, allows YOLO to capitalize on the industry's expansion while mitigating some of the risks associated with investing in individual cannabis stocks.
The fund's advisory fee is 0.88%, which is relatively competitive for a specialized sector ETF, particularly given the reduction by acquired fund fees and expenses related to investments in the AdvisorShares Pure US Cannabis ETF.
Conclusion
In summary, the cannabis industry is on the cusp of significant transformation, fueled by evolving regulatory landscapes and influential political support. The YOLO ETF offers an intriguing and cheap opportunity to tap into this dynamic market, providing exposure to various cannabis companies. While the road ahead may be speculative - and lightly traded - the potential rewards make it a compelling consideration for those looking to ride the green wave of change.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
