With U.S. states like Arizona, Colorado, Massachusetts, and Washington regulating the use of marijuana for medical and recreational purposes, many cannabis companies are beginning to find their feet in the U.S. market.
These cannabis-focused companies are famous for their pot stocks, but seasoned investors understand the importance of diversifying their capital using marijuana exchange-traded funds (ETFs). These investment options spread your funds across a basket of marijuana stocks.
At a time when analysts believe there’s a potential major regulatory change at the federal level, we review the best cannabis ETF options on the market to help investors make informed decisions.
Key Players in the Cannabis ETF Market
Here are some of the key parties that you’ll find on the cannabis EFT market at the moment.
AdvisorShares Pure US Cannabis ETF (MSOS)
AdvisorShares is one of the most reputable cannabis investment firms in the U.S. As such, the AdvisorShares Pure U.S. Cannabis ETF (MSOS -0.14%) sits at the top of the best marijuana ETF options for 2024.
The cannabis ETF is best for US investors, as it exclusively combines marijuana stocks from the US market. These include stocks from the largest cannabis brands like Curaleaf Holdings (CURLF), Verano Holdings (VRNO.F), Terrascend (TRSSF), Green Thumb Industries (GTBIF), and Trulieve Cannabis (TCNNF).
Altogether, these brands account for the largest share of the entire cannabis market on the New York Stock Exchange (NYSE). In other words, the strong ETF portfolio offers investors one of the best opportunities to invest in marijuana in the US and better manage risks and rewards.
Interestingly, the AdvisorShares Pure US Cannabis ETF (MSOS) is one of the best-performing ETFs under $10, with a current value of $6.75 at the time of writing.
AdvisorShares Pure Cannabis ETF (YOLO)
The AdvisorShares Pure Cannabis ETF (YOLO 0.00%) is another high-performing marijuana ETF from AdvisorShares. The ETF having a shout as the best marijuana ETF in 2023 is another testament to the company’s leading position in the global cannabis investment market.
Unlike the pure US cannabis ETF option from AdvisorShares, the alternative AdvisorShares Pure Cannabis ETF combines pot stocks from the US and the global cannabis market. In other words, investors looking for balanced opportunities from marijuana companies within and outside the US can opt for this ETF option.
There are 24 holdings combined in the ETF, with about 50% of them from the US market. Some of the supported stocks include Tilray Brands (TLRY), Village Farms International (VFF), High Trade (HITI), Jazz Pharmaceuticals (JAZZ), and Innovative Industrial Properties (IIPR).
Another reason AdvisorShares Pure Cannabis ETF (YOLO) makes our list of the best cannabis ETFs for 2023 is its low price of $2.59 at the time of writing.
ETFMG Alternative Harvest ETF (MJ)
Next on our list of the best cannabis ETFs to buy now is the ETFMG Alternative Harvest ETF (MJ -0.96%). With a history dating back to 2015, the ETF was one of the earliest cannabis ETFs with stocks from the global market. In other words, the ETFMG Alternative Harvest ETF has been around long before the Canadian government legalized cannabis use and consumption in 2018.
Unlike the previous two cannabis ETFs, this option has a portfolio that focuses more on the Canadian stock market, with popular producers like Tilray Brands (TLRY), Canopy Growth (CGC), Chicago Atlantic Real Estate Finance (REFI), and Cronos Group (CRON) among its 34 stock options.
Additionally, MJ sells for $3.10 at the time of writing, making it a decent option for beginner investors. However, with the majority of its individual stocks from the Canadian market, the ETF’s performance may be negatively impacted because of the US federal laws limiting the operations of Canadian cannabis companies in the US cannabis market.
ETFMG U.S. Alternative Harvest ETF (MJUS)
As the name implies, the ETFMG U.S. Alternative Harvest ETF (MJUS -0.90%) is a cannabis ETF with a portfolio focused on the U.S. cannabis market. So, investors looking for more opportunities in the US from the ETFMG can opt for MJUS instead of MJ.
Additionally, the ETF started trading in 2021, making it one of the latest marijuana ETFs to invest in. The newness is also evident in its current pricing of $1.61, making it a suitable option for investors with low capital.
The ETF also has a portfolio of 29 individual marijuana stocks, including top options like Green Thumb Industries (GTII), Curaleaf Holdings (CURLF), Verano Holdings (VRNOF), Trulieve Cannabis (TCNNF), and Innovative Industrial Properties (IIPR).
Another reason investors choose MJUS is because the ETF has a heavy investment in short-term US treasury bonds. The bonds offer attractive returns, and they make up over 44% of the entire MJUS portfolio.
Horizons Marijuana Life Sciences Index ETF (HMMJ)
Finally, the Horizons Marijuana Life Sciences Index ETF (HMMJ) is the last marijuana ETF that’s performing well in the market. The ETF started trading in 2017, making it one of the oldest options on the market. It was also one of the earliest pioneers of targeting the global cannabis market and compounding different stock options.
However, unlike other ETF options in our review, HMMJ isn’t listed on any major stock exchange in the United States. Instead, interested investors can buy the ETF using an over-the-counter (OTC) service provider. The OTC market is for ETFs that don’t meet the exchange listing requirements from the US Securities and Exchange Commission (SEC).
There are 27 different marijuana stock positions in the HMMJ ETF. Some of the holdings include Cronos Group (CRON), Tilray Brands (TLRY), Jazz Pharmaceuticals (JAZZ), and ScottsMiracle-Gro (SMG).
The holdings make up nearly 70% of the ETF’s portfolio, and at a current price of $6.29, HMMJ is a decent ETF option for beginners and seasoned investors.
Factors Influencing Cannabis ETF Performance
Though the entire cannabis market is still shaping up, marijuana investors can get significant yields by spreading their capital across combined stock baskets in the form of ETFs. However, while ETFs are less risky than individual stocks, their performances can be impacted by many factors. We highlight some of them below.
Legal Developments
The cultivation and consumption of marijuana remain illegal at the federal level, which is a significant challenge for the cannabis industry. However, recent legal developments suggest that the industry may be on its way to being regulated at the federal level.
Some of these developments include the issuance of recreational dispensary licenses by states like New York and the federal cannabis offense pardons by the President Biden administration.
Market Trends
Another challenge facing the US cannabis market is its unstable market trends. Since the market is still evolving, demands fluctuate and can lead to oversupply. Therefore, stock prices can rise and drop from time to time and affect ETF performance.
Investor Sentiment
Due to strict regulations at the federal level and uncertainties about the government’s stance changing soon, there are mixed investor sentiments. Cannabis investments are highly risky, so risk-averse investors may opt for safer investment options.
Diversification and Risk Management in Cannabis ETFs
As stated earlier, marijuana ETFs are safer investment options than individual stocks. However, cannabis ETFs are also risky because their positions are usually determined by major assets from top cannabis companies or producers.
For instance, AdvisorShares Pure US Cannabis ETF (MSOS), has producers like Curaleaf Holdings and Greenthumb Industries holding its biggest positions. In other words, the performance of these stocks individually will affect the entire ETF stock basket.
To mitigate risks, it’s advisable to combine different high-performing ETFs. That way, investors can cut across multiple companies’ stocks and hedge better against the constant market volatility.
For example, a U.S. investor can opt for the AdvisorShares Pure US Cannabis ETF (MSOS) to invest in only U.S. marijuana companies and the ETFMG Alternative Harvest ETF (MJ) for marijuana ETFs with stocks primarily from Canadian companies. That way, if the US market is not performing well, there’s a backup option in the Canadian market.
Future Outlook for Cannabis ETFs
According to Statista, revenue from the American cannabis market is projected to reach $33.88 billion in 2023 and reach a market volume of $67.15 billion at the end of 2028. Currently, the market is far from these optimistic projections, but the cannabis market is also relatively young.
Looking at the current reality and the future, it’s safe to say there’s a lot to look forward to as far as the US and the global marijuana landscapes are concerned. However, many factors will determine how much growth the industry will potentially experience. These include friendlier regulations from the American government at the federal level and more states legalizing the production and consumption of marijuana in their jurisdictions.
Making an Informed Investment Decision
The marijuana industry is poised for massive growth over the coming years, and early investors are keying into the various possibilities that abound in the space. Cannabis ETFs are among the best ways to invest in the US and global marijuana markets. ETFs combine stocks from different companies into one basket, helping investors diversify their portfolios.
We’ve reviewed the five best cannabis ETFs this year to help you find investment options without hassles. However, it’s important to note that while cannabis ETFs are less risky investment options, the market is volatile. So, we recommend doing proper research to determine your personal investment goals and make the best decision for you eventually.
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Why You Can Trust The Marijuana Index
The information provided on Marijuana Index is solely for educational purposes. The selections presented here are the product of meticulous analysis by an experienced financial analyst. However, it’s crucial to remember that these choices may not universally fit every portfolio.
Before making any investment decisions, we strongly encourage you to conduct thorough research. This ensures that any potential investment aligns with your unique financial goals and risk tolerance.
As of the date this article was written, the author does not hold any positions in the stocks or ETFs mentioned.
We do not provide personalized financial advice, advisory services, or brokerage recommendations. Nor do we advocate for the purchase or sale of specific stocks or securities. Please be aware that performance information might have changed since publication, and past performance should not be seen as an indicator of future results.
Investing in cannabis stocks carries its own set of risks, reflective of the evolving legal landscapes and market volatility inherent in this industry. As an investor, it’s essential to be aware of these risks and consider them carefully in your decision-making process.
To understand more about our commitment, we encourage you to learn more about us. If you have more questions for our cannabis specialist editors, do not hesitate to contact us. You can also send us a tweet at @Marijuana_index. Stay updated with the latest cannabis news by subscribing to our Newsletter.
Tobi Opeyemi - Financial Writer
Tobi, a journalist and crypto writer since 2017, is renowned for his educational content in the digital currency realm. His journey includes a significant tenure with Stockbossup, an investment platform committed to enlightening the black community on financial matters. Before this, Tobi honed his skills as a copywriter at Turboxbt, a platform specializing in cryptocurrency trading. Notably, Tobi's insights are featured on Investopedia, where he contributes articles on a range of topics. He is also celebrated as one of the top web3 creators on LinkedIn, known for content that consistently drives engagement and sparks conversations in the industry. With a background in Pharmacy, he brings a unique perspective to his writing, especially in the Cannabis sector.
