ETF rule changes could help the marijuana investment space

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The SEC has updated its stance on how ETF vehicles can be offered

The US Securities and Exchange Commission (SEC) has finally made a change to how it views exchange-traded funds (ETF). The goal was to modernize their regulation and create a more transparent and consistent framework for ETFs, and the updates have the ability to greatly improve how cannabis-based ETFs act and are introduced. This is going to help the cannabis investment space evolve rapidly as the industry continues to grow throughout 2020.

Per the SEC’s announcement on the changes, “The adoption will facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors. It also will allow ETFs to come to market more quickly without the time or expense of applying for individual exemptive relief. In addition, the Commission voted to issue an exemptive order that further harmonizes related relief for broker-dealers.”

SEC Chairman Jay Clayton adds, “Since ETFs were first developed over 27 years ago, they have provided investors with a number of benefits, including access to a wide array of investment strategies, in many cases at a low cost. As the ETF industry continues to grow in size and importance, particularly to Main Street investors, it is important to have a consistent, transparent, and efficient regulatory framework that eliminates regulatory hurdles while maintaining appropriate investor protections.”

Put simply, the new rules allow different ETFs to be classified, which will facilitate competition and innovation in the space. They also will give investors more choices and allow certain ETFs to be introduced quicker than ever before, even in the cannabis ecosystem. Says Jay Jacobs, the head of research and strategy for Global X ETFs, “I think we could see more products from more issuers. It lowers the bar for new issuers to come into the space and launch an ETF. So to be fair, over the last 10 years that bar has been getting lower and lower and lower, as more people have become ETF issuers, and go through the process. But there was still a bar there. Now that bar has been effectively taken away. So it is much more streamlined for someone to become an ETF issuer.”