Marijuana is illegal at the federal level but medically legal in 33 states and legal for recreational use in 11 states as of January 2020. The marijuana market has an immense capacity for growth and attracts serious investment. However, it’s experienced major losses due to regulation and supply issues. Investors need to know the ins and outs of weed ETFs.
What are some alternative ways to invest in marijuana without exposing yourself to the vulnerabilities of a growing market?
Enter weed exchange-traded funds (ETFs). Weed ETFs incorporate a basket of various assets within the marijuana industry. Most weed ETFs do not invest in local dispensaries. Instead, they tend to invest in a wide range of companies across the marijuana industry, from biotech companies to fertilizer producers.
Don’t miss out on this burgeoning industry. Here’s how you can get involved with cannabis ETFs.
Quick Look at the Best Weed ETFs:
Weed ETFs Biggest Gainers and Losers
Cannabis ETFs emerged on the market about a decade ago and initially posted huge gains. However, many marijuana stocks lost big toward the end of 2019.
Check out the live updates below to see which weed ETFs are gaining and losing.
Premarket Weed ETFs
As an ETF investor, you’re eligible to take part in premarket trading. Premarket trading happens before the general markets open, allowing you to get a head start on the day and news cycle.
However, the volume of shares traded on the market during premarket hours is lower than during regular hours. This can make a share look stronger or weaker than it is before the market opens and real volume trading comes into play.
Aftermarket Weed ETFs
Along with premarket access, ETF investors also have access to aftermarket trading. Aftermarket, or post-market trading, is the period after the markets close when you can buy or sell securities outside of regular trading hours. Though aftermarket trading poses the similar volume risks as premarket trading, it can be advantageous because you have the ability to react to breaking news or new information before the next day’s market opens.
Why Invest in Weed ETFs?
Take a look at the top 3 reasons you can consider an investment in weed ETFs.
1. Long-Term Benefits
Despite industry-wide setbacks in 2019, momentum toward legalization continues to build. As more states and countries legalize marijuana, the demand for access to medical and recreational marijuana increases.
If you want to capitalize on this momentum but are wary of early-stage market volatility, ETFs offer a happy medium. Investing in weed ETFs can provide access to the growing marijuana market and its long-term benefits. It’s much less risky than investing in stocks directly.
Rather than putting all of your eggs in 1 basket and investing in a single cannabis stock or penny stock, weed ETFs allow you to participate in the various stocks a fund holds across the marijuana industry. This means that you can access a greater number of investments throughout the marijuana industry with less investment capital. Weed ETFs also minimize risk by relying on overall industry performance indicators rather than the performance of a single stock.
3. User Friendly
Investing in ETFs is a relatively straightforward process with minimal upkeep. Your ETF fund is passively managed, which allows you to monitor from afar until you sell your individual shares. Weed ETFs are a great option for investors to tap into the marijuana industry at lower risk, without much upkeep.
Top 3 Weed ETF(s) by AUM
Weed ETFs consist of a range of companies throughout the marijuana industry. Here are the 3 weed ETFs whose growth records and diverse assets under management (AUM) indicate future recovery.
AUM refers to the market value of a company’s assets that also serves as a useful metric to measure a company’s success over time. The higher a company’s AUM, the more successful the company.
1. Alternative Harvest ETF (NYSEARCA: MJ)
MJ was the first weed ETF offered in the U.S. and it tracks several cannabis stocks around the world. MJ comprises 37 holdings, and it only invests in companies that get 50% or more of their earnings from marijuana.
MJ’s shares include companies engaged in both medical and nonmedical purposes, ranging from legal cultivation of marijuana products to fertilizer manufacturers and pharmaceutical companies that distribute cannabinoids. MJ’s top 4 holdings include Cronos Group (NASDAQ:CRON), GW Pharmaceuticals Inc. (NASDAQ: GWPH), Canopy Growth (NYSE: CGC) and Aurora Cannabis Inc. (NYSE: ACBFF).
2. Horizons Marijuana Life Sciences Index ETF (TSX: HMLSF)
Headquartered in Toronto, the Horizons Marijuana Life Sciences Index ETF is 1 of the largest weed ETFs. It primarily focuses on stocks within the medical cannabis sector. The Horizons Marijuana Life Sciences Index ETF is listed on the Toronto Stock Exchange (TSX), and it’s open to U.S. investors on the over-the-counter (OTC) market.
HMLSF’s portfolio consists of over 50 marijuana stocks and provides investors with exposure to marijuana businesses ranging from pharmaceuticals to cannabis cultivation. HMLSF’s top 4 holdings include Canopy Growth Corp. (NYSE: CGC), GW Pharmaceuticals Inc. (NASDAQ: GWPH), Cronos Group (NASDAQ: CRON) and Scotts Miracle-Gro (NYSE: SMG).
3. The Cannabis ETF (NYSEARCA: THCX)
The Cannabis ETF from Spinnaker ETF Series focuses solely on cannabis-related companies in the pharmaceutical and biotech sectors. It doesn’t diversify investments in companies across the marijuana industry. The majority of the Cannabis ETF’s holdings are in the U.S., though it holds assets in the U.K. and Canada as well.
The Cannabis ETF’s aim is to provide investors with easy access to the marijuana market and its top 4 holdings are Aphria Inc. (NYSE: APHA), Scotts Miracle-Gro (NYSE: SMG), Cronos (NASDAQ: CRON) and GW Pharmaceuticals (NASDAQ: GWPH).
Best Online Brokers for Weed ETFs
Weed ETFs are a great way to diversify or hedge portfolio risks. Here are Benzinga’s top picks for investment firms that can help you navigate the ins and outs of the marijuana industry and ETFs.
Firstrade appeals to both experienced investors and beginners with its $0 trading costs, $0 per-contract fees for options trades and $0 account minimum. Firstrade also provides access to 3 trading platforms and a mobile app for easy access to up-to-date information.
Additionally, if you’re interested in long-term investments, take advantage of Firsttrade’s commission-free trades for all mutual funds.
2. TD Ameritrade
TD Ameritrade is known for its 4 high-quality trading platforms. It offers free research, data and portfolio guidance and has almost 300 branches dedicated to in-person customer support.
TD Ameritrade has a $0 minimum investment policy and charges $0 commissions on stock, options, ETF trades and a selection of mutual funds. Though Charles Schwab acquired TD Ameritrade in November 2019, TD Ameritrade will accept accounts until the acquisition is finalized. Then all TD Ameritrade accounts will be moved over to Charles Schwab.
Invest in the Right Weed ETF for You
Though the marijuana market has experienced turbulent times this past year, long-term indicators suggest that the industry may be down but not out. Weed ETFs are a great way to dip your toes in and test out the marijuana market without immersing yourself completely. By investing in a weed ETF, you can tap into a diverse collection of assets across the marijuana industry and limit your exposure to market volatility risk.
Frequently Asked Questions
What are weed ETFs?
Weed ETFs are bundles of investment assets with companies involved in the weed industry.
Are weed ETFs a good investment?
Weed ETFs have been up and down, but are generally considered a good long-term investment.
Which weed ETFs are a a good investment?
Benzinga offers a list of good weed ETFs on the list above.