Cannabis ETFs: Complete Guide
Cannabis exchange-traded funds (ETFs) offer investors diversified exposure to the cannabis industry without the need to pick individual stocks. Several cannabis-focused ETFs trade on major US exchanges, each with a different strategy and composition.
The AdvisorShares Pure US Cannabis ETF (MSOS) is the most popular cannabis ETF, focused exclusively on US multi-state operators. Because MSOs cannot list directly on major exchanges, MSOS uses swap agreements to gain exposure to OTC-traded MSO stocks. This makes MSOS the primary vehicle for institutional investors seeking US cannabis exposure. Holdings typically include Curaleaf, Green Thumb Industries, Trulieve, and Verano.
The ETFMG Alternative Harvest ETF (MJ) is one of the oldest cannabis ETFs and takes a broader approach, including Canadian LPs, ancillary companies, and international cannabis firms. MJ holds stocks like Tilray, Canopy Growth, and Scotts Miracle-Gro. Its diversified approach provides exposure to the global cannabis market but also includes companies with less direct cannabis revenue.
The AdvisorShares Pure Cannabis ETF (YOLO) offers a blend of US and Canadian cannabis exposure, holding both MSOs (via swaps) and directly listed cannabis companies. The Amplify Seymour Cannabis ETF (CNBS) and the Cannabis ETF (THCX) provide additional options with their own portfolio construction methodologies.
When choosing between cannabis ETFs, investors should consider several factors: geographic focus (US vs. international), exposure to MSOs vs. LPs, expense ratios (which tend to be higher than mainstream ETFs, typically 0.60-0.95%), tracking methodology (direct holdings vs. swaps), and liquidity. MSOS has the highest trading volume among cannabis ETFs, making it the most liquid option.
Cannabis ETFs are subject to the same risks as individual cannabis stocks, including regulatory uncertainty, 280E taxation impacts, and the volatile nature of a rapidly evolving industry. However, diversification across multiple companies reduces single-stock risk and provides a more manageable way to invest in the sector.
Frequently Asked Questions
What is the best cannabis ETF to invest in?
The best cannabis ETF depends on your investment thesis. MSOS offers pure US MSO exposure, MJ provides broader global cannabis exposure, and YOLO blends both. MSOS is the most liquid and popular among institutional investors focused on US cannabis.
What is the difference between MSOS and MJ?
MSOS focuses exclusively on US Multi-State Operators using swap agreements, while MJ holds a broader mix of Canadian LPs, ancillary companies, and international cannabis firms through direct stock ownership.
Are cannabis ETFs a good investment?
Cannabis ETFs offer diversified exposure to the cannabis sector, reducing single-stock risk. However, the sector is volatile and faces unique regulatory risks. They may be suitable for investors with high risk tolerance who want cannabis exposure without picking individual stocks.