For the first time ever, an exchange traded fund (ETF) with exposure to the marijuana industry has received approval to join the New York Stock Exchange (NYSE). The new ETF will provide investors with a simple way to access a burgeoning cannabis industry that some say is the biggest market opportunity of a generation.
NYSE Marijuana Fund
Beginning Dec. 26, investors will be able to purchase the Alternative Agroscience ETF through a NYSE subsidiary. The ETF tracks the Alternative Agroscience Index, which seeks exposure to ventures primarily engaged in the cultivation, production and distribution of cannabis products. The investment universe includes companies involved in the manufacturing of cannabinoid-related drugs, businesses that make fertilizers and pharmaceuticals.
The ETF only tracks companies in states where marijuana is legal. As of November 2017, 29 states and Washington, D.C. have legalized medical weed. A total of eight states and D.C. have legalized recreational marijuana sales.
North of the border, Canada is on track to legalize recreational weed this coming July. Horizons has already launched its Marijuana Life Sciences ETF (HMMJ) on the Toronto Stock Exchange. The fund has already gained more than 21% since April with total assets nearing $234 million CAD. The fund has returned nearly 52% over the past three months as capital flowed back into marijuana investments.
Marijuana: A Budding Industry
The marijuana industry is expected to be one of the biggest opportunities since the dot-com era. A recent publication by Arcview Market Research predicted that legal marijuana sales will exceed $20 billion by 2020.
Colorado has emerged as an important bellwether of the marijuana industry. The state legalized recreational weed back in 2014. Over that period, the state has generated hundreds of millions of dollars in tax revenue. Legalization has also generated a booming cannabis tourism industry.
Colorado’s population and economic footprint are only a fraction of California’s, a state that legalized recreational cannabis during the last election cycle. If Colorado is a proxy for what could happen in California, then Arcview’s estimate is probably on the conservative side. The state already generates roughly $50 million annually in tax revenue from medical marijuana.
Marijuana stocks have been adding value at a rapid rate over the past three weeks. The North American Marijuana Index has gained more than 27% since Oct. 26. The index consists of 35 components, including GW Pharmaceuticals Plc (GWPH), Canopy Growth Corporation (WEED) and CannTrust Holdings Inc. (TRST).
The North American Marijuana Index is further broken down into U.S. and Canadian indexes. The benchmarks represent sectors as diverse as consumption devices, AgriTech and biopharmaceuticals.
The future of marijuana investments remains bright, but regulatory hurdles at the federal level could make it difficult for U.S. companies to manage their growing wealth. That’s because cannabis remains illegal at the federal level, which means federally insured banks cannot lend to the sector. States like California have already expressed a willingness to fight federal encroachment on state rights when it comes to cannabis. It remains to be seen whether other states will follow suite.