Cannabis ETFs Guide: MSOS vs MJ vs YOLO Compared

Understanding Cannabis ETFs: Your Gateway to the Green Rush

Cannabis exchange-traded funds (ETFs) offer investors a diversified way to gain exposure to the rapidly evolving cannabis industry without the complexity of picking individual stocks. As the cannabis sector continues to mature, three major ETFs have emerged as the primary investment vehicles: AdvisorShares Pure US Cannabis ETF (MSOS), ETFMG Alternative Harvest ETF (MJ), and AdvisorShares Pure Cannabis ETF (YOLO).

Each fund takes a different approach to cannabis investing, targeting distinct segments of the market with varying risk profiles and growth potential. Understanding these differences is crucial for beginners looking to enter the cannabis investment space.

MSOS: The US-Focused Pioneer

AdvisorShares Pure US Cannabis ETF (MSOS) stands out as the only ETF providing pure-play exposure to US cannabis companies. Launched in September 2020, MSOS has become the largest cannabis ETF by assets under management, with approximately $650 million in total assets as of late 2023.

### Key Holdings and Strategy

MSOS focuses exclusively on companies with significant exposure to the US cannabis market, where state-level legalization continues to expand. The fund's top holdings include:

- Curaleaf Holdings (CURLF) - 11.2% allocation - Green Thumb Industries (GTBIF) - 10.8% allocation - Trulieve Cannabis (TCNNF) - 9.4% allocation - Verano Holdings (VRNOF) - 7.9% allocation - Cresco Labs (CRLBF) - 7.1% allocation

MSOS targets companies deriving at least 50% of their revenue from the US cannabis industry, providing focused exposure to the world's largest cannabis market.

The fund employs an actively managed strategy, allowing portfolio managers to adjust holdings based on market conditions and regulatory changes. This flexibility has proven valuable given the dynamic nature of cannabis legislation and market developments.

### Performance and Considerations

MSOS has experienced significant volatility, reflecting the broader challenges facing US cannabis companies, including federal illegality and limited banking access. The fund's expense ratio of 0.74% is relatively high compared to traditional ETFs but reasonable for an actively managed specialized fund.

MJ: The Diversified Global Approach

ETFMG Alternative Harvest ETF (MJ) takes a broader approach to cannabis investing, launched in December 2015 as one of the first cannabis ETFs. With approximately $400 million in assets under management, MJ offers exposure to the global cannabis ecosystem.

### Holdings and Investment Philosophy

Unlike MSOS, MJ includes companies across the entire cannabis value chain, from cultivation to pharmaceuticals to ancillary services. The fund's diversified approach includes:

- Canopy Growth Corporation (CGC) - 8.9% allocation - Tilray Inc (TLRY) - 8.1% allocation - Cronos Group (CRON) - 5.4% allocation - GW Pharmaceuticals - 4.7% allocation - Innovative Industrial Properties (IIPR) - 4.2% allocation

MJ also holds positions in companies that may benefit from cannabis legalization without direct cultivation exposure, such as tobacco companies and pharmaceutical firms developing cannabis-based medicines.

### Passive Management Strategy

MJ follows the Prime Alternative Harvest Index, employing a passive management approach with automatic rebalancing. This strategy results in a lower expense ratio of 0.75% and reduces the impact of manager decisions on performance.

MJ's broader approach provides exposure to both direct cannabis companies and ancillary businesses that could benefit from industry growth.

YOLO: The International Cannabis Focus

AdvisorShares Pure Cannabis ETF (YOLO) launched in April 2019, targeting global cannabis companies with emphasis on international markets. With approximately $50 million in assets under management, YOLO is the smallest of the three major cannabis ETFs.

### Portfolio Composition and Strategy

YOLO seeks companies generating at least 50% of their revenue from cannabis operations, similar to MSOS but with global scope. The fund's holdings include:

- Village Farms International (VFF) - 7.8% allocation - 22nd Century Group (XXII) - 6.9% allocation - Tilray Inc (TLRY) - 6.1% allocation - Canopy Growth Corporation (CGC) - 5.8% allocation - Cronos Group (CRON) - 5.2% allocation

The fund employs active management with a focus on identifying undervalued cannabis companies across global markets. YOLO's expense ratio of 0.74% matches MSOS, reflecting the costs of active management.

### International Exposure Benefits

YOLO provides exposure to markets where cannabis is federally legal, including Canada and several European countries. This approach offers potential benefits from established regulatory frameworks and international expansion opportunities.

Performance Comparison and Risk Analysis

All three cannabis ETFs have experienced significant volatility since their inception, reflecting the nascent nature of the cannabis industry and regulatory uncertainties.

### Historical Performance Metrics

2021-2023 Performance Analysis: - MSOS: -65% cumulative return - MJ: -58% cumulative return - YOLO: -71% cumulative return

The challenging performance reflects several industry headwinds:

1. Federal illegality in the US limiting banking and institutional investment 2. Oversupply issues in mature markets like California and Colorado 3. High taxation on cannabis businesses through IRS Section 280E 4. Competition from illicit markets 5. Dilutive equity financing due to limited debt access

### Volatility and Beta Analysis

Cannabis ETFs typically exhibit beta coefficients of 1.5-2.0 relative to broader market indices, indicating significantly higher volatility than traditional investments.

This high volatility creates both opportunities and risks for investors, requiring careful position sizing and risk management.

Investment Considerations for Beginners

### Regulatory Risk Factors

Cannabis investments face unique regulatory challenges that beginners must understand:

Federal vs State Legal Status: US cannabis companies operate in a legal grey area where state laws permit operations but federal prohibition remains.

Banking Limitations: Most major banks cannot serve cannabis companies due to federal regulations, forcing reliance on credit unions and specialty lenders.

Tax Disadvantages: Section 280E prohibits cannabis businesses from deducting normal business expenses, significantly impacting profitability.

### Portfolio Allocation Strategies

Financial advisors typically recommend 2-5% portfolio allocation to cannabis investments for aggressive growth investors, given the sector's high volatility and speculative nature.

Conservative Approach: 1-2% allocation through MJ for diversified exposure Moderate Approach: 3-4% allocation split between MSOS and MJ Aggressive Approach: 5%+ allocation with higher MSOS weighting for US market exposure

### Due Diligence Framework

Before investing in cannabis ETFs, beginners should evaluate:

1. Expense ratios and total cost of ownership 2. Holdings concentration and diversification benefits 3. Management approach (active vs passive) 4. Geographic focus and regulatory environment 5. Liquidity and trading volumes

Choosing the Right Cannabis ETF

### MSOS: Best for US Cannabis Exposure

Choose MSOS if you: - Believe in US cannabis market potential - Want exposure to large US operators - Prefer active management - Can tolerate high volatility

### MJ: Best for Diversified Cannabis Exposure

Choose MJ if you: - Want broad cannabis ecosystem exposure - Prefer passive management - Seek global diversification - Want some defensive positioning through ancillary companies

### YOLO: Best for International Cannabis Focus

Choose YOLO if you: - Believe international markets offer better opportunities - Want exposure to federally legal markets - Prefer smaller, potentially higher-growth companies - Can accept higher concentration risk

Key Takeaways

- MSOS offers pure-play US cannabis exposure through the largest operators like Curaleaf and Green Thumb Industries, making it ideal for investors bullish on American cannabis legalization - MJ provides diversified global cannabis exposure including ancillary companies, offering broader risk distribution across the cannabis ecosystem - YOLO focuses on international cannabis markets where federal legality may provide clearer regulatory pathways and growth opportunities - All three ETFs carry high expense ratios (0.74-0.75%) and significant volatility, requiring careful position sizing within broader portfolios - Regulatory risk remains the primary investment consideration, with federal US legalization representing the key catalyst for sector performance - Beginners should limit cannabis ETF allocation to 2-5% of total portfolio and understand the speculative nature of these investments before committing capital