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A US-Focused Cannabis ETF Is Finally On The Way

August 28, 2020 8:36 am
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Through boom and burst of the cannabis equity cycle, two things became abundantly clear: multi-state operators (MSOs) often outperformed their Canadian rivals and accessing MSOs through most New York-listed marijuana exchange-traded funds was difficult.

What Happened: Accessing cannabis MSOs via the ETF wrapper will soon get easier because AdvisorShares is launching the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) on Sept. 2.

This isn't AdvisorShares' first rodeo with marijuana ETFs. The issuer sponsors the AdvisorShares Vice ETF (NASDAQ:ACT), which features some cannabis equity exposure, and the AdvisorShares Pure Cannabis ETF (NYSE:YOLO), the first dedicated actively managed weed ETF.

YOLO features some synthetic exposure to domestic MSOs. Dan Ahrens, YOLO's portfolio manager, will also run MSOS.

Why It's Important: MSOS components will be companies that generate at least half their revenue from the U.S. cannabis and hemp industries.

“In addition to its investment in securities of companies that derive a significant portion of their revenue from the marijuana and hemp business, and in derivatives providing exposure to such securities, the Fund may invest in securities of companies that, in the opinion of the Advisor, may have current or future revenues from cannabis-related business or that are registered with the DEA specifically for the purpose of handling marijuana for lawful research and development of cannabis or cannabinoid-related products,” according to the MSOS prospectus.

MSOS will follow a methodology similar to how YOLO attains MSO exposure, meaning the new fund will use derivatives. The reason for that strategy is that the New York Stock Exchange, the new ETF's listing venue, requires the fund's holdings to be listed at NYSE, Nasdaq, Toronto Stock Exchange, or the TSX Venture Exchange.

Most MSOs trading in the U.S. do so over the counter.

What's Next: It remains to be seen what the appetite for MSOS will be, but the difference in having some MSO exposure and none at all is palpable. For example, the aforementioned YOLO is higher by 0.84% year-to-date while the largest cannabis ETF is down almost 28%.

MSOS will charge 0.74% per year, or $74 on a $10,000 investment, which is reasonable for an actively managed, derivatives-heavy strategy.

Including ACT and YOLO, there are currently nine cannabis ETFs trading in the U.S.

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