ETF Managers Group (ETFMG) has rolled out a cannabis equity ETF focused specifically on the US market.
Sam Masucci, Founder and CEO of ETFMG.
The ETFMG US Alternative Harvest ETF (MJUS US) has listed on NYSE Arca and comes with an expense ratio of 0.75%.
It offers an alternative to ETFMG’s debut cannabis offering, the ETFMG Alternative Harvest ETF (MJ US), which targets the global cannabis market.
Introduced in December 2017 and tracking the Prime Alternative Harvest Index, MJ has proven popular with investors, currently housing over $1.5 billion in assets.
The new ETF, MJUS, is designed for investors who wish to specifically target the US cannabis market’s high growth potential. The US is already the largest cannabis market globally with recorded legal sales in excess of $17.5 billion in 2020. This represents a 46% sales growth year-on-year, according to data from BDSA, an analytics firm focused on the cannabis industry.
The industry is, however, expected to ultimately generate $85bn in sales by 2030 with several factors acting as tailwinds. These include the innovative nature of cannabis companies, the trend towards legalization on a federal level, and the importance of the cannabis sector for tax revenue and job creation, both of which are front-of-mind issues for the US government following the economic impact of the Covid-19 pandemic.
Jason Wilson, ETFMG Cannabis analyst, said: “With voter support for federal legalization initiatives at an all-time high, combined with the positive economic impact cannabis legalization would provide through job creation and increased tax revenues, it is widely anticipated that the current administration will pass federal legislation providing meaningful cannabis reform, which would greatly benefit existing US cannabis-related businesses.”
Sam Masucci, Founder and CEO of ETFMG, added: “We are especially proud to be bringing yet another cannabis product to investors, specifically an ETF that captures one of the greatest untapped areas of growth potential in the industry.”
Investment approach
The fund is benchmarked to the Prime US Alternative Harvest Index which comprises companies deriving at least 50% of their revenue from the cultivation, production, marketing, or distribution of cannabis-related products within the US. Such products include industrial hemp, prescription drugs, supplements, and food. The index also covers auxiliary companies that support the cannabis industry through technology, real estate, or financial services.
According to the prospectus document, the ETF is not technically an index-tracking fund but will “generally provide exposure to the components of the Reference Index”.
The fund will concentrate at least 25% of its investments in the pharmaceuticals, biotechnology, and life sciences industry groups. It will also use total return swaps to gain exposure to certain securities it cannot purchase due to legal or administrative reasons, and will also provide access to multistate operators which are typically not widely available in US brokerages.