2021 is the year for cannabis ETFs

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Exchange-traded funds are an attractive way to invest in the cannabis market

Since the November 3 elections in the US, cannabis stocks have been on the rise behind new hope given to the legalization of cannabis at the federal level. Markets are highly optimistic that the incoming president will stay true to his word and at least work toward decriminalization of cannabis, which is seen as another positive step toward the legalization of marijuana in the US. Because of the current and expected growth, cannabis exchange-traded funds (ETF) have become a popular alternative for investors.

Arizona, South Dakota, New Jersey, Montana and Mississippi voters approved the ballot initiatives to legalize cannabis in some form, and adult-use recreational marijuana in New Jersey, Arizona and Montana was approved, while medical-only marijuana was approved in South Dakota and Mississippi. Cannabis industry analysts see broad new markets opening up, which means more demand and assured industry growth of as much as 20% for 2021.

Going into 2021 in the US, there will be 36 states that have approved medical marijuana only sales and 15 states where adult-use recreational sales are now legal. As this continues to expand, ETFs such as the ETFMG Alternative Harvest ETF MJ, the first and currently the largest cannabis ETF, will see more support. This ETF now holds 33 securities, of which US companies comprise around 82.1%. On average, it has gained 15.6% each month as the market has advanced this year.

There is also the AdvisorShares Pure US Cannabis ETF MSOS, which has accumulated $145.2 million since it made its debut four months ago. It concentrates solely on US companies and has 32 securities in its basket. Over the past month, it has gained 14.4%.

There are other cannabis ETFs to consider, as well, and they have all seen double-digit gains. For investors looking to take advantage of the growth of cannabis without making a move on a pure-play stock, these investment alternatives would make a good addition to the portfolio.