In this four-part series, Benzinga takes an exclusive look at some of the highest valued, US-traded cannabis ETFs.
For part three, we spoke with Dan S. Ahrens, Managing Director and the Chief Operating Officer of AdvisorShares Pure Cannabis ETF YOLO.
AdvisorShares Pure Cannabis ETF YOLO launched April 2019, and is the first actively managed cannabis ETF in the U.S. With about $46 million in assets, YOLO stands out for its investment exposure to the U.S. multi-state operators (MSOs), which cannot be achieved by some of its competitors due to regulatory barriers.
BZ Cannabis: What's the fund criteria for putting together the index?
D.A.: With individual security selection (rather than being index-based), we hand-elect cannabis-related companies that we believe offer the best opportunities for price appreciation.
We generally seek companies that are profitable or that have a clear path to achieving printability. We also seek strong balance sheets. We seek only companies that are truly in cannabis-related business, meaning those with at least 50% of their revenue cannabis-related, or 50% of their assets tied to cannabis business. This eliminates all the companies where tobacco, alcohol, fertilizer, lighting, etc. are their primary business.
The Fund has the ability to invest in REITS and derivative contracts to seek cannabis exposure in addition to regular equities. We also seek U.S. exposure more than any competitor funds.
What is the fund's strategy and why is it better than the approach taken by other cannabis ETFs?
I believe that active portfolio management and active security selection is extremely important in cannabis. YOLO has more U.S. cannabis exposure than other funds - both with investments in MSOs that other funds cannot invest in, and in REITs that equity index funds can't own.
We choose to avoid or underweight many of the largest, most famous names in the Canadian cannabis business that most indexes weight highest.
YOLO is also a real "pure play" in cannabis investments - avoiding companies many competitors own such as Scotts Miracle Gro, lighting companies, testing companies, big tobacco, alcohol, etc.
Why are ETFs a good investment option for retail investors with little knowledge of the cannabis market? Are they any good for experienced investors?
ETFs are a good investment tool for any investor. People need to realize that large institutional investors are among the biggest users of ETFs.
Of course ETFs are very good for retail investors as a way to get a diversified basket of cannabis stocks. As an active fund, we obviously attempt to select the best ones. Far too many individual investors in cannabis stocks are actually among the most heavily traded, but among the worst performers.
ETFs can also engage in institutional securities lending to create income and can trade ETF creation and redemption baskets for greater tax efficiency as compared to individual investors.
Lead image by Ilona Szentivanyi. Copyright: Benzinga.
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