According to a joint paper published by BDS Analytics and ArcView Market Research, global annual spending on marijuana hit $9.5 billion in 2017. By 2022, the market is expected to grow by over 27% a year, which means a total value of $32 billion!
In many people’s eyes, the only tried and trusted method of accumulating wealth is through investment. With a second income slowly growing as you work hard to boost your primary income, you can produce a large nest egg in a surprisingly short period. Investing in the stock market with mutual funds has long since been favored method of boosting wealth.
With the growth of the marijuana market, however, it is hardly a surprise that investors are keeping a keen eye on what’s likely to happen next in the cannabis industry.
In late 2016, there were no cannabis-focus Exchange-Traded Funds (ETFs), but that all changed when American Growth Funds (AMREX), a mutual fund, began focusing on the sector and unveiled its Series Two Fund.
In this guide, we provide you with a brief overview of five major cannabis-related investment funds (all figures in U.S. Dollars), but first, we must warn you of the potential dangers of dipping your toes into the marijuana financial sector.
Investing in Marijuana – What Could Go Wrong?
To begin with, by adding cannabis plays into your financial portfolio, you are likely to be investing in something offered by a mutual fund, which is a collection of different marijuana stocks. As such, even if the overall market is performing well, your fund could hit the skids.
The Series Two Fund, for example, came into being at a time when the cannabis market was starting to accelerate its growth. However, its semi-annual report, released in January 2018, revealed that the fund was worth just $895,000 – far less than what was required merely to cover its expenses!
If you are investing in an American-based fund, please note that the plant remains illegal on a federal level. In theory, the United States Department of Justice could elect to crackdown on any marijuana-based businesses in the country, even those in states where it is legal. Attorney General Jeff Sessions, in fact, has repeatedly outlined his opposition to marijuana legalization and has threatened to infringe on states’ rights.
It is also crucial to note that a significant number of weed stocks could be overvalued at present, with most stock prices already factoring in the expected tremendous growth that’s set to take place over the next few years.
As a result, with most funds, you will be paying over the odds in the anticipation that the market continues to grow. In Canada marijuana has just been made legal, but there are already concerns over the nation’s ability to produce enough to meet demand. A supply issue could potentially cripple cannabis funds.
Finally, so-called Over-the-Counter (OTC) marijuana stocks are risky. All companies listed on major stock exchanges (such as NASDAQ and the New York Stock Exchange) must adhere to strict rules, including the filing of regular financial statements and maintaining minimum market caps. These measures help investors assess the risks associated with stocks. OTC stocks don’t have to meet many of these requirements, and most cannabis-related stocks are of the OTC variety.
1 – Horizon Marijuana Life Sciences (HMMJ)
This is the world’s biggest marijuana ETF fund, and as of the end of October 2018, you could purchase shares in it for $14.55. HMMJ has experienced something of a downturn in the last few weeks after reaching its record high level of $19.03 on September 21, 2018. Though this has been the case with nearly every ETF as the market has reacted to legalization in Canada.
It seems likely that the news generated a huge sell-off which contributed to a massive decline in share price. It is also likely that investors were looking to cash in to get ready for the launch of three major American-based cannabis companies on the Canadian stock exchanges before the end of the year.
At the end of September, HHMJ added nine new stocks to its index, including Tilray Inc., the world’s largest marijuana stock by market cap. At present, the fund holds almost 50 stocks, and when Tilray was added, it became the fund’s fifth biggest holding at almost 8% of the portfolio.
In early September, HHMJ became the first cannabis-focused ETF to break the billion-dollar barrier.
2 – ETFMG Alternative Harvest ETF (MJ)
This was the best-performing ETF in August 2018, and as of the end of October, you could purchase shares for $31.99 – a healthy drop from its record $40.05 level set on September 24. Its net assets are at almost $679 million, and it is closing the gap on HHMJ even though volatility means it is actually down over the 2018 YTD.
Despite the downturn, major organizations are still backing MJ to recover. Recently, INTL FCStone purchased 5,325 shares in the fund which were worth approximately $213,000. Also, a significant number of hedge funds have modified their holdings, with the Royal Bank of Canada buying a position worth over $1 million during the first quarter of 2018.
3 – Evolve Marijuana UNT ETF (SEED)
As far as marijuana ETFs go, Evolve has coped admirably with the recent fall in the markets. As of the end of October 2018, it was available for $16.67 a share; not that far off from its record price of $19.26, which was achieved during the middle of October. It is a marijuana fund that is geared towards Canadian investors.
Although it is only slightly above the $14.64 value it had when it began trading in February 2018, Evolve has maintained a slow yet steady pace, which means it could be a good long-term bet for those interested in a more conservative fund. It initially started poorly and fell to a low of $11 in August, but then enjoyed a spike, and initial investors have remained in the red since.
4 – Horizon Juniors Marijuana Growers Index ETF (HMJR.TO)
This is another relatively new fund that only began in February 2018, where it had initial net assets of around $15 million. It is another fund that hasn’t performed as well as expected and, as of the end of October 2018, you can purchase shares for under $6. It is another fund that isn’t as volatile as one would expect; it has seldom exceeded $7, nor has it gone far below its existing mark.
This is an interesting fund because it focuses on very small marijuana growers; officially, it is looking to track the Solactive Junior Marijuana Growers Index. Although it is much smaller than the other Horizon fund (or perhaps because of it), investors must pay a higher management fee. Overall, HMJR.TO has been a disappointment with a net loss for the 2018 YTD.
5 – American Growth Funds Series Two Class E (AMREX)
At present, AMREX is classified as a conservative pick, as it is available for $4.05 per share as of the end of October 2018. With net assets of under $1 million, you may be wondering why it is included in a list of the ‘biggest cannabis related investment funds.’ It is eminently affordable, and while it has also fallen in recent times, it isn’t far below its 2018 high of $4.80, which was achieved in January.
It is possible that this fund is actually at a good price point; it suffered a crippling summer of 2016 when it plummeted from $11.19 to $5.31 in the space of two weeks, but AMREX has remained steady ever since, and its holdings include both Cara Therapeutics and GW Pharmaceuticals. According to some market experts, it could prove to be an excellent diversifier against the movements of the Standard and Poor 500 (S&P 500).
Final Thoughts on Cannabis Related Investment Funds
There are certainly never any guarantees in the world of investment. Although the marijuana market is set to skyrocket, it is important to temper your enthusiasm to reasonable levels. By the end of September 2018, it was clear that many investors felt cannabis stocks were massively overpriced. Once marijuana was officially legalized in Canada, investors began selling en-masse.
It seems as if the majority of “investors” are millennials who need to be aware that they are operating in an age of two asset bubbles (along with cryptocurrencies such as Bitcoin). The boom in the market is currently based on a new approach to the drug business, along with an untapped market for consumers.
At the end of the day, please remember that marijuana is a commodity, which means its market is likely to go through boom and bust spells, just as with any other investment.
As with any financial decision, do your research, and only invest what you can afford.