Market Overview

A $1 Billion High For The Marijuana ETF

A $1 Billion High For The Marijuana ETF

The ETFMG Alternative Harvest ETF (NYSE: MJ) is now a member of an exclusive exchange traded funds club.

MJ, the only pure-play cannabis ETF trading in the U.S., recently topped the $1 billion in assets under management mark.

What Happened

It has been just over two years since MJ was converted into a marijuana ETF from a fund that previously provided exposure to Latin American real estate investments. Over the past 24 months, MJ is up more than 50 percent, or more than double the returns of the S&P 500 over the same time frame.

MJ tracks the Prime Alternative Harvest Index and is up more than 49 percent year-to-date, making it one of the best-performing non-leveraged ETFs in the U.S. to this point in 2019.

Cronos Group Inc. (NASDAQ: CRON), Canopy Growth Corp. (NYSE: CGC), Aurora Cannabis Inc. (NYSE: ACB) and Tilray, Inc. (NASDAQ: TLRY) combine for over 36 percent of the fund's weight.

Why It's Important

Assets under management tallies make for nice headlines, but are usually just superficial metrics. In the case of MJ, however, the fund's asset-gathering proficiency confirms the notion that investors want exposure to the fast-growing legal cannabis space. A Canada-listed marijuana ETF is, in local currency terms, also a $1 billion fund, or the equivalent of $761 million in U.S. dollars.

An increasing number of states already have or are considering ballot initiatives and laws that could legalize medicinal and recreational cannabis. Marijuana remains illegal at the federal level in the U.S., which is one of the reasons why MJ doesn't have more competition in the domestic marijuana ETF space. However, Attorney General nominee William Barr says he will respect states' marijuana laws, a sentiment that has provided a catalyst for cannabis stocks this year.

What's Next

A more relaxed view of legalized marijuana at the federal level could facilitate the launch of added competition for MJ, something some ETF sponsors are preparing for.

As of Feb. 4, MJ had seen $113.56 in 2019 inflows, or more than 10 percent of its $1.01 billion in assets under management.

While it's unlikely marijuana will be legalized at the federal level this year, New York is pushing to legalize adult-use recreational cannabis and several other states are mulling some form of legalized cannabis legislation this year. In its roughly 26 months on the market, MJ has shown plenty of sensitivity of positive regulatory news. The fund still needs to rally another 19.45 percent to reclaim its 52-week high.

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