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A Cannabis ETF Looking For Redemption

September 16, 2019 8:00 am
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Cannabis stocks and exchange traded funds endured a summer of woe. The actively managed AdvisorShares Pure Cannabis ETF (NYSE:YOLO) is saddled with a third-quarter loss of 18.55%, but the fund's manager, Dan Ahrens, believes YOLO and some of its components are poised to rebound.

What Happened

YOLO and rival cannabis ETFs are coming off a rough August, but some stocks in the group are showing positive signs and that could position cannabis asset for a more credible rally later this year.

“While some individual securities were showing promising revenue growth and positive earnings, most cannabis stocks were down in August, continuing their summer months struggle,” said Ahrens in a recent note. “However, I feel it’s time for it to come to an end. As I’m writing this commentary in early September, we’re already seeing a strong rebound. And, at the current lowered prices and more reasonable valuations, I believe we have good reason to be optimistic.”

Why It's Important

YOLO debuted in April, becoming the second U.S.-listed marijuana ETF and first to employ active management. Although YOLO is new, the fund's success can be viewed as somewhat of a gauge for investors' appetite for cannabis ETFs and the active wrapper. To date, the fund has attracted $56.44 million in assets under management.

There are some benefits to active management in this space. For example, YOLO was the first cannabis ETF to add domestic multi-state operators.

“YOLO offers far more U.S. market exposure than any competitor fund. In addition to the six prominent U.S. MSO’s in its portfolio, YOLO holds stocks like Innovative Industrial Properties (NYSE:IIPR), Charlotte’s Web (TSX:CWEB), cbdMD Inc (NYSE:YCBD), Cara Therapeutics (NASDAQ:CARA) and Arena Pharmaceuticals (NASDAQ:ARNA),” said Ahrens.

Last month, YOLO added a stake in Sundial Growers Inc. (NASDAQ:SNDL) to its roster. Overall, 43.1% of YOLO's roster is comprised of American companies.

What's Next

YOLO remains committed to the idea of “pure” cannabis investing, something that could help the fund carve out a favorable niche among investors going forward.

“Now that there are a few cannabis funds in the marketplace (although some are still tiny and we’re not sure they’ll reach critical mass), its very important to look at a fund’s holdings to know what you’re investing in,” said Ahrens.

“YOLO’s fund name is AdvisorShares Pure Cannabis ETF for a reason. All of its constituent companies are primarily in the cannabis business. YOLO doesn’t own tobacco, alcohol, fertilizer, weed-killer,  lighting, or drug-testing companies. Competitor cannabis funds own all that other ancillary “stuff”. YOLO is pure cannabis.”

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