Cannabis ETFs Spike on Marijuana Classification Review
DEA's Review of Cannabis Reclassification Sparks Surge in Marijuana Stocks and ETFs.
Marijuana stocks spiked following the report that the US Drug Enforcement Administration (“DEA”) is reviewing the potential reclassification of cannabis from Schedule I to Schedule III. This development, initiated by a recommendation from the Department of Health and Human Services (HHS), could lead to substantial federal benefits for the U.S. cannabis industry if it goes through.
As a result, many ETFs in the space have been surging. ETFMG U.S. Alternative Harvest ETF stole the show, gaining 6.3%. It was followed by AdvisorShares Pure US Cannabis ETF, AdvisorShares Pure Cannabis ETF, Roundhill Cannabis ETF, and Subversive Cannabis ETF. These ETFs have gained nearly 5% each in the initial trading days of 2024. The solid trading is likely to continue at least in the near term or should legalization pave the way.
Reclassification: A Booster for Marijuana
A federal reclassification could potentially expand the market for marijuana, which is a multibillion-dollar industry in the United States and a cash crop in many newly legalized states.
A Schedule III classification could ease the banking restrictions, allowing businesses to have more straightforward access to banking services and attract more investors. The reclassification could alleviate some of the tax burdens and help shift public perception, further legitimizing the medical cannabis industry and potentially paving the way for broader acceptance and use of marijuana as a therapeutic agent.
Additionally, a shift in the classification could provide momentum for more states to consider medical or recreational legalization, as it would signal a change in the federal government's stance on the drug's potential risks and benefits. Nearly 40 states in the United States have already legalized marijuana in various capacities.
Moving marijuana to Schedule III would provide clearer regulatory guidelines for businesses, potentially leading to more consistent product quality and safety standards across the industry.
ETFs to Tap
ETFMG U.S. Alternative Harvest ETF
ETFMG U.S. Alternative Harvest ETF is designed to provide investors exposure to cannabis companies operating in the United States, including multi-state operators (MSOs) directly involved in the cultivation, production, marketing and distribution of cannabis or cannabis-related products. It holds 30 stocks in its basket with a heavy concentration of the five firms.
ETFMG U.S. Alternative Harvest ETF has amassed $114.1 million in its asset base and charges 75 bps in annual fees. It trades in a volume of 28,000 shares a day.
AdvisorShares Pure US Cannabis ETF
AdvisorShares Pure US Cannabis ETF is the first actively managed U.S.-listed ETF with dedicated cannabis exposure focusing exclusively on U.S. companies, including MSOs. It holds 23 securities in its basket with a double-digit concentration on the top four firms.
AdvisorShares Pure US Cannabis ETF has amassed $586.2 million in its asset base while trading in an average daily volume of $5.4 million shares. It charges 83 bps in annual fees.
AdvisorShares Pure Cannabis ETF
AdvisorShares Pure Cannabis ETF is an actively managed fund with a dedicated cannabis investment mandate domiciled in the United States. YOLO seeks long-term capital appreciation by investing in domestic and foreign cannabis equity securities. AdvisorShares Pure Cannabis ETF holds a basket of 23 stocks, with American firms making up 68.1% of the portfolio, followed by Canadian firms with 28.4% share.
AdvisorShares Pure Cannabis ETF has gathered $38.7 million in its asset base and charges 1.03% in annual fees. YOLO trades in an average daily volume of 52,000 shares.
Roundhill Cannabis ETF
Roundhill Cannabis ETF is designed to offer investors exposure to the cannabis sector. The fund may invest in various cannabis-related companies, including cannabis producers and distributors, cannabis-related technology companies, and additional cannabis-related ancillary businesses. It holds six stocks in its basket.
Roundhill Cannabis ETF has gathered $3.1 million in its asset base so far. It charges 40 bps in annual fees and trades in 6,000 shares a day on average.
Subversive Cannabis ETF
Subversive Cannabis ETF is an actively managed fund that invests in companies that will thrive as the legal marijuana industry expands. It holds four stocks in its basket and charges 75 bps in annual fees
Subversive Cannabis ETF trades in a volume of 500 shares a day on average.
