Cannabis stocks jumped last week, bouncing back from post-election losses as former New Jersey Governor Chris Christie weighed in on the next administration's 420-friendly business policies. With the Department of Justice already considering a proposal to reclassify cannabis from Schedule I to Schedule III, Christie says that President-elect Trump could deschedule cannabis altogether, in a move that could lift significant banking, labor, and taxation hurdles industry-wide.
Adding to the enthusiasm, Trump's controversial decision to tap Matt Gaetz, a vocal marijuana reform advocate, as his pick for Attorney General reveals more clues about his attitude toward the cannabis industry. While debates continue to swirl around the outspoken Floridian's confirmation prospects, the nomination of Gaetz, who has consistently pushed for federal legalization and banking reforms, seems to confirm the cannabis-friendly tenor of the incoming administration.
This favorable shift in policy comes at a critical time for the cannabis industry, with U.S. companies losing $2.6 billion in market value post-election after an adult-use bill failed to pass muster in Florida. For investors looking to speculate on all aspects of the next administration's pro-business agenda, here's a look at two exchange-traded funds (ETFs) to capture a potential upswing in weed stocks.
#1. AdvisorShares Pure Cannabis ETF
AdvisorShares Pure Cannabis ETF (YOLO), launched in April 2019, operates with a clear mandate: capturing growth across the global cannabis landscape. Currently priced below $3, YOLO's strategy requires that 80% of its assets be placed in companies deriving at least 50% of revenue from cannabis operations, spanning from cultivation to biotechnology and ancillary services. This actively managed approach allows quick adjustments to market shifts, particularly valuable in the cannabis sector.
The fund's largest holding is its sister ETF, AdvisorShares Pure US (MSOS), at 40.91%, creating a strong foundation in U.S. cannabis markets. The remaining top holdings showcase geographical diversity: Canadian retailer High Tide Inc. (HITI) at 10.60%, multinational producer Village Farms International (VFF) at 7.39%, Canadian cannabis company SNDL Inc (SNDL) at 6.42%, and biotechnology firm Cardiol Therapeutics (CRDL) at 5.41%.
Performance-wise, YOLO is down 12.6% year-to-date, and has tumbled 91.6% from its 2021 highs. The fund also offers a healthy 3.52% dividend yield.
With $34.7 million in assets under management (AUM), the fund has an average daily share volume around 90,000, providing reasonable liquidity for most retail investors. YOLO's 0.88% management fee, while not the lowest in the ETF space, reflects the intensive active management required in the cannabis sector.
By spreading investments across multiple countries and subsectors, YOLO offers exposure to various aspects of the cannabis industry's growth story.
#2. AdvisorShares Pure US Cannabis ETF
AdvisorShares Pure US Cannabis ETF (MSOS), launched in September 2020, is the first actively managed ETF focused exclusively on U.S. cannabis companies. The fund's strategy centers on providing direct exposure to multi-state operators (MSOs) through a sophisticated system of swap agreements and direct holdings, allowing it to navigate complex regulatory requirements while maintaining pure-play cannabis exposure.
Currently trading below $5, MSOS commands $632 million in AUM, making it the largest cannabis ETF in the market. The fund employs a concentrated portfolio approach, with its top five holdings accounting for over 83% of assets. Green Thumb Industries (GTBIF) leads at 32.30%, followed by Trulieve Cannabis (TCNNF) at 19.31%, Curaleaf Holdings (CURLF) at 16.47%, Verano Holdings (VRNOF) at 8.22%, and Cresco Labs (CRLBF) at 7.38%. This focused strategy aims to capitalize on the market leadership of established multi-state operators.
The fund's performance reflects the volatile nature of the cannabis industry, down 33.2% year-to-date and 82.8% below its 2021 highs.
The fund's reasonable 0.80% management fee supports its active management approach, allowing for tactical adjustments as market conditions evolve.
What sets MSOS apart is its unique position as the only ETF providing pure U.S. cannabis exposure through swap agreements. This structure enables the fund to maintain positions in companies that, despite operating legally at the state level, face federal listing restrictions - and it allows investors to make a single investment through an NYSE Arca-listed fund, rather than multiple investments in over-the-counter securities.
The fund's concentrated approach and exclusive focus on U.S. operators make it a direct play on the domestic cannabis market's evolution. While this concentration can amplify volatility, it also positions the fund to capture significant potential upside from regulatory reforms and market expansion.
Conclusion
The cannabis sector sits at a crossroads, with these two ETFs offering different paths to capture potential growth. While MSOS takes a concentrated bet on U.S. operators, YOLO spreads its risk across global markets. Both funds have taken hits in recent months, but with Trump's apparent pro-cannabis lean and a potential deregulatory spree on the horizon, these price dips might present compelling entry points.
