Thursday, July 9, 2020
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You’ll Soon Be Able To Invest In A US-Based Marijuana ETF

Investors looking to cash in on the green rush have a new opportunity in the United States: a marijuana ETF that will begin trading next month.

According to ETF Daily News, a site dedicated to information on Exchange Traded Funds: 

The Marijuana ETF is still about a month and a half away, but here’s what we know about it so far. It will track the Alternative Agroscience Index, an index that invests in companies that are primarily engaged in the legal cultivation, production and distribution of cannabis, pharmaceutical companies that manufacture or market cannabinoid-related drugs and businesses that make fertilizers and pesticides used in the cultivation of cannabis. The fund will only include companies that operate in states where marijuana is legal.

The ETFMG Alternative Agroscience ETF will be the first U.S. traded fund dedicated to investing in marijuana cultivators and distributors.

What Is An ETF?

For those not familiar with ETFs, think of it as an index fund. Here is how NASDAQ defines ETFs:

Exchange Traded Funds are funds that track indexes like the NASDAQ-100 Index, S&P 500, Dow Jones, etc. When you buy shares of an ETF, you are buying shares of a portfolio that tracks the yield and return of its native index. The main difference between ETFs and other types of index funds is that ETFs don’t try to outperform their corresponding index, but simply replicate its performance. They don’t try to beat the market, they try to be the market. ETFs have been around since the early 1980s, but they’ve come into their own within the past 10 years.

According to the SEC filing:

A Cannabis Company is considered to be primarily engaged in a described line of business if it derives more than 50% of its revenue from such activity. The Cannabis Companies would be expected to possess all necessary permits and licenses to legally grow cannabis.

Although new to the United States, this is not the first marijuana ETF in the world. In April, the Toronto Stock Exchange began trading a cannabis ETF: The Horizons Medical Marijuana Life Sciences (HMMJ) fund, which now has more than $200 million in assets under management.

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