Investing in a cannabis fund might be a safer option for some wary traders
While it is true that the marijuana industry is growing at a steady pace, with legal sales in the billions in recent years, the companies’ actions in the space have proven to be much more volatile than expected, especially in the last year. This being the case, marijuana ETFs are seen as a practical possibility to easily diversify an investment while reducing the natural risk of the stock market. When choosing a cannabis ETF, there are other factors to consider in addition to the underlying index methodology and the performance of an ETF. Experts already have their favorite.
The ETFMG Alternative Harvest (MJ) was the first cannabis ETF to be listed on a US exchange, launched in December 2017. It is a passive fund that tracks the Prime Alternative Harvest Index.
This allows it to keep management costs low, but in turn, limits the upside potential. According to its manager, Jason Wilson, MJ is the most liquid ETF on the market.
Its assets total more than $600 million, making it larger than all other cannabis ETFs combined. MJ was designed to measure the performance of cannabis companies whose growth is associated with the progress of legalization globally. “This approach recognizes the fact that the cannabis industry is intertwined with many other industries, and that many companies outside of the cannabis ecosystem are going to benefit from a global move toward legalization,” says Wilson.
As a primary criterion, MJ invests in companies that generate the majority of their revenue from growing cannabis or cannabis-derived products. Secondly, the fund invests in cannabis companies that offer services adjacent to cultivation, and are expected to profit from the overall growth of the industry. Finally, and to a lesser extent, it includes companies not directly related to cannabis, which may benefit from its growth.