How AdvisorShares Determines What Stocks To Include In Its Cannabis ETFs
This special presentation from AdvisorShares comes from Benzinga’s Virtual Cannabis Capital Conference that took place on October 15. Click here for more coverage of this event with presentations from some of the top CEOs, investors and lenders in the cannabis space.
The cannabis industry is growing rapidly in countries across the globe. In places such as the U.S., the new proposed legislation is making this sector more and more promising for investors.
AdvisorShares, a U.S.-based investment management company, has been creating investment opportunities in this sector for years. The company currently offers three carefully curated cannabis ETFs to help you invest in companies they believe are driving forces for this emerging industry.
The 3 Cannabis ETFs
As the first U.S.-listed ETF approved for cannabis investment exposure, the company released the AdvisorShares Vice ETF (NYSE:VICE). Interestingly, as time has gone on, we are now seeing tobacco and alcohol companies dip into the cannabis industry.
The company’s second cannabis ETF, which was released in April of 2019, took a more specialized approach. Ticker symbol YOLO is the AdvisorShares Pure Cannabis ETF (NYSE:YOLO) which includes cannabis companies from all over the globe. YOLO became the first cannabis ETF to offer select U.S. multi-state operator (MSO) exposure.
“And the word ‘pure’ is very important to us,” said Dan Ahrens, portfolio manager of YOLO and MSOS ETFs. “If I’m going to be a cannabis investor, I want pure cannabis. I don’t want that other stuff. And if I’m playing the acquisition game, I want to own the acquirees, not the acquirers.”
In September of this year, AdvisorShares announced the launch of the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) — a new ETF that focuses only on U.S. cannabis companies. In the four weeks following the release of MSOS, the ETF was up 11.97%. MSOS is the second cannabis ETF to offer exposure to U.S. MSOs.
“We think the U.S. is the best opportunity for cannabis investing,” said Ahrens. “The U.S. market is at least 10x the size of Canada.”
YOLO vs. MSOS
Unlike MSOS whose holdings are all U.S.-based companies, YOLO’s portfolio includes cannabis companies from across the globe — including the U.S. & Canada.
Both ETFs are opportunistic and can invest in mid- and small-cap companies and new cannabis equity IPOs. They both also offer ease of access to cannabis across multiple securities — rather than just one or two stocks — via a single trade on the NYSE Arca.
YOLO and MSOS offer exposure to an ever-expanding group of companies across various industries involved in the business of cannabis: multi-state operators, growers/cultivators, dispensaries, consumption devices, real estate, CBD focused, hydroponics, pharmaceutical/biotech, and professional services.
The Selection Process
The AdvisorShares ETFs work to diversify your portfolio by investing in companies that are positioned for growth.
“They [YOLO & MSOS] are actively managed. They’re not overly actively managed but on any given day we can make moves to be opportunistic and to limit risk. We’re not tied to any kind of monthly or quarterly rebalance or being tied to an index,” said Ahrens. “We can make portfolio manager decisions.”
When building a portfolio, AdvisorShares does it for the companies that they believe are the best-of-the-best. They avoid or underweight companies with poor balance sheets — ones that are going to add more shares and dilute shareholders. They can decide this by handpicking which stocks they want to own in heavy positions and which stocks they want to own at all.
AdvisorShares’ portfolio managers focus on balance sheets and profitability when making their selections.
Ahrens added, “We feel it will continue to be a volatile industry to invest, however for all of our ETFs, we have proven we can outperform the other cannabis ETFs. We believe active management, opportunistic adjustments, and our experience in the space has made the difference.”
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