Two exchange-traded funds (ETFs) focused on the cannabis industry, ETFMG Alternative Harvest ETF (MJ) and AdvisorShares Pure US Cannabis ETF (MSOS), have taken different strategies in pursuit of their targeted sector.
The Summit, New Jersey-based ETFMG Alternative Harvest ETF (MJ) was founded in 2014 and targets the global cannabis industry by tracking the Prime Alternative Harvest Index. The top holding in its portfolio is its $10.03 share of Canada’s Aphria Inc. (APHA), followed by an 8.43% share of Britain’s GW Pharmaceuticals plc (GWPH).
The Bethesda, Maryland-based AdvisorShares Pure US Cannabis ETF (MSOS) only began trading on Sept. 2 of this year and concentrates solely on cannabis-related businesses within the U.S. market, investing at least 80% of its net assets in the securities of U.S. companies that derive at least half of their net revenue from marijuana and hemp businesses. Slightly more than half of its portfolio belongs to BlackRock Liquidity Funds Treasury Trust Institutional (TTTXX), and the next largest holding is a 4.25% share in the real estate investment trust Innovative Industrial Properties Inc. (IIPR).
The cannabis industry has experienced its share of ups and downs across 2020, but investors are still interested in its near-future potential, especially in regard to the U.S. market. Which of these ETFs is the better stock pick?
Latest Movements
MJ is the largest cannabis-focused ETF on the market, and on Dec. 4 it announced it reached $1 billion assets under management (AUM). Founder and CEO Sam Masucci hailed the achievement by proclaiming, “Investors have become increasingly aware of the industry’s long-term growth potential and its growing importance.”
MJ holds 33 securities within the cannabis global industry. A large percentage of them are Candian cannabis companies that are listed on U.S. stock exchanges but don’t do business in the U.S. or are inching their way into the American marijuana market.
More than 50 countries have legalized medicinal cannabis programs while Canada and Uruguay have legalized both medicinal and recreational cannabis. And more countries might soon relax their cannabis policies. On Dec. 2, the United Nations Commission on Narcotic Drugs voted on Dec. 2 to reclassify cannabis from its Schedule IV list of dangerous and highly addictive drugs to the less restrictive Schedule I tier that identifies it as a controlled substance. The U.S. supported the move, even though federal law prohibits all forms of cannabis commerce.
The much smaller ETF, MSOS, has $132.3 million in total net assets, and is composed of U.S.-only multi-state operators, which could pay off if the incoming Biden Administration and the next Congress decide to reconsider federal cannabis policy. Biden campaigned on decriminalizing marijuana but was conspicuously silent on legalization, either for medicinal purposes only or for both medicine and recreational purposes. Likewise, the House of Representatives recently passed a bill only to decriminalize marijuana.
Nonetheless, investors in the cannabis industry are talking up a new era in U.S. policy, despite a lack of evidence that anyone in Washington is willing to push for such dramatic changes. Also, the president-elect has highlighted the ongoing COVID-19 pandemic, the economy and climate change as his immediate priorities, with nary a word on cannabis policy reform. Absent of a genuine movement for change, a U.S.-centric focus might fray if the status quo remains solidly in place.
Recent Financial Performance
MJ is trading at $15.13, which is closer to its 52-week high of $19.33, than its 52-week low of $8.81. The stock was mostly trending downwards in 2020 before taking a euphoric upswing with the election of Joe Biden – a situation that most cannabis-focused stocks undertook.
As a relative newcomer to the scene, MSOS’ track record is still a work in progress. Today it reached another all-time high of $36.15. The stock launched on Sept. 2 at $24.67, hit its low point within three weeks of its debut, and has been steadily climbing ever since.
The Winner
I believe that MSOS is the better of the two cannabis ETFs as we head into 2021. American multi-state operators, which is what MSOS is composed of, will benefit more greatly from the Biden administration’s cannabis policies than Canadian cannabis companies (which make up a large percentage of MJ). In addition, many of the multi-state operators’ balance sheets are healthier than their Canadian counterparts.
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MJ shares were trading at $15.15 per share on Wednesday afternoon, up $0.26 (+1.75%). Year-to-date, MJ has declined -6.64%, versus a 16.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Phil Hall
Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series. He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output.
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