Market Overview

Active Cannabis ETF Eschews Canadian Names

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Active Cannabis ETF Eschews Canadian Names

Most marijuana-related assets, be they stocks or exchange traded funds, have been punished this year and the AdvisorShares Pure Cannabis ETF (NYSE: YOLO) isn't an exception to that rule, but YOLO could be poise to turn a corner in 2020.

What Happened

YOLO debuted in April as the second cannabis ETF in the U.S. and the first actively managed fund in the space. Though off its highs by this metric, the fund has $43 million in assets under management, a decent start for a rookie niche ETF in a space that has faltered this year.

As an actively managed ETF, YOLO has the advantage of being able to avoid some of the cannabis industries most downtrodden equities, including beleaguered Canadian names.

“During the month a November, we saw a real divergence between some U.S. operators and the overall cannabis investment market (largely dominated by Canadian companies),” said YOLO portfolio manager Dan Ahrens said in a recent note. “The importance of U.S. cannabis exposure was a main point I made in last month’s commentary, calling out our fund’s exposure to Innovative Industrial Properties, Inc (NYSE: IIPR), Curaleaf (OTC: CURLF), Green Thumb Industries (OTC: GTBIF), Trulieve (OTC: TCNNF), and other U.S. companies.”

Why It's Important

YOLO was the first cannabis ETF to feature robust exposure to U.S. based multi-state operators (MSOs), a group of marijuana names typically not found or under-represented in index-based cannabis ETFs.

“Curaleaf, Green Thumb Industries, and Trulieve are U.S. based multi-state operators that we hold exposure to,” said Ahrens. “Other cannabis-related funds simply do not. For November, Curaleaf gained 29.5%, Green Thumb gained 14.8%, and Trulieve gained 26.3%.”

YOLO allocates 52.4% of its weight to U.S. cannabis stocks compared to 41.5% to Canadian names. The fund's domestic exposure is among the largest in its peer group while its Canadian weight is among the smallest.

What's Next

Recently, YOLO's domestic holdings have, at the very least, helped the fund perform less poorly.

“Innovative Industrial Properties, Inc is one of our fund’s largest holdings. As a U.S. listed REIT, it is not available to be held in an index-based cannabis equity ETF. We hold it since we can as an actively managed ETF. IIPR was positive in November, gaining close to 2%,” according to Ahrens. “Cara Therapeutics (NASDAQ: CARA), a U.S. based pharmaceutical company gained more than 25%. It also gained more than 13% in October.”

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