How First U.S. ETF With 'Cannabis' in Name Plans to Beat Skeptics

A new U.S. exchange-traded fund (ETF) focused on cannabis stocks – the first U.S. ETF to use the word “cannabis” in its name – plans to debut under the ticker NYSE:YOLO, an acronym that stands for “You Only Live Once.” The AdvisorShares Pure Cannabis ETF plans to undercut its competitors with pricing, charging 1 basis point less than the ETFMG Alternative Harvest ETF (MJ). YOLO is set to debut on Thursday, just days before April 20, also known as 4/20, an unofficial pot holiday, as outlined by Bloomberg.

What You Need to Know About the AdvisorShares Pure Cannabis ETF

  • To launch on April 2018 under the ticker YOLO
  • Charging 1 basis point less than rival cannabis ETF Alternative Harvest
  • First actively-managed cannabis ETF to trade in the U.S.
  • Aims to invest at least 80% of assets in companies that generate 50% of net revenue from marijuana or hemp, R&D companies, and related securities

Source: Bloomberg

The YOLO fund is an actively-managed ETF which aims to invest at least 80% of its assets in securities of companies that generate at least 50% of their net revenue from the marijuana and hemp industry, or companies that register with the DEA for the purpose of R&D, and in derivatives or other instruments related to these securities, per an SEC filing. According to Maryland-based Advisor Shares, the fund will allocate across a range of primarily U.S. and Canadian cannabis companies, spanning different industries including those specializing in consumer products.

Aggressive Strategy

The new cannabis ETF will charge $0.74 for every $1,000 invested, or 74 basis points, per regulatory documents.

“Launching 1 basis point cheaper than MJ is a bit absurd, but symbolic of the era we are in right now where expense ratio is one of the first things an adviser looks at,” said Eric Balchunas, an ETF analyst at Bloomberg Intelligence. “This ETF has at least a fighting chance to find an audience.”

The AdvisorShares Pure Cannabis ETF reflects a new aggressiveness by issuers, who have struggled to start funds that directly reference marijuana due to concerns over the legality of the business on the federal level. This has led custodians and other service providers to act more cautiously in the marijuana space. Meanwhile, the U.S. Securities and Exchange Commission has been more adamant about requiring thematic funds to justify their names, per Bloomberg. Bank of New York Mellon will serve as YOLO’s custodian, administrator and transfer agent.

Pot Stocks Stumble Ahead of Q1 Reporting Season

News of another cannabis ETF launching on April 18 comes as pot stocks suffer a volatile period due to concerns over revenue, supply shortages and other issues.

Some market watchers, including analysts at Cowen & Co., view the recent slump in the marijuana industry as an opportunity to buy shares of cannabis producers at a discount, as outlined by Barron’s. Cowen’s Andrew Stein notes that revenue estimates for cannabis companies in the upcoming Q1 reporting season have been falling, leading to “profit-taking across the sector.”

Net flows in the cannabis space have been weighted towards the sell and short side, correlating to the overall consumer sector money flow, “as investors shift to a more defensive stance after a strong year to date equity returns,” he added. The S&P 500 has gained 15.6% YTD, while the Horizons Marijuana Life Sciences Index ETF (HMMJ) and the Alternative Harvest ETF have returned 42.7% and 37.3% respectively.

The downward pressure on weed stocks such as Cronos Group Inc. (CRON) should prove temporary, per Stein, who reiterates his outlook that “this sector remains a second half 2019-2020 story.”

Looking Ahead

While the cannabis industry remains a volatile one, recent interest in the space from big institutional investors, including Harvard Management Co.’s massive endowment fund, have made the sector look more attractive to some. After decades of attempting to push into the mainstream, with milestones such as gaining access to traditional banking services, the cannabis industry is charging ahead. While headwinds remain, those seeking to bet on a booming market, expected by Arcview Market Research to hit $57 billion by 2025, may consider ETFs like YOLO for the long game.

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