ETF investors who are interested in the rising cannabis industry should look to the importance of experienced active management when investing in this emerging asset class.
On the recent webcast, Investing in Cannabis: What Advisors Need to Know, Christian Magoon, Founder and CEO, Amplify ETFs, outlined the history of cannabis and how the industry has only just begun to gain a firm footing after California became the first state to legalize cannabis in 1996, followed by Washington and Colorado in 2012, and more recently, Canada became the second country in the world to legalize it.
Investors should also understand the different breakdown of the cannabis species. Some may have heard of terms like CBD oils, hemp, THC and marijuana. CBD is a non-psychoactive component while THC is psychoactive. Hemp is a species of cannabis with less than 0.3% THC while the more widely known marijuana contains 15% to 20% THC.
With the wider acceptance of cannabis, major retailers are stepping into the CBD realm, with names like Amazon, Whole Foods, Walgreens, Rite Aid and CVS, among others, conservatively selling CBD products.
Looking ahead, Magoon argued that cannabis investing can enjoy exponential growth ahead as wider acceptance around the world leads to legalization trends, opening up new markets, and developments in the field of medicine also begin to incorporate the benefits of cannabis.
According to Arcview Market Research & BDS Analytics, legal global cannabis spending is expected to surge to $31.7 billion by 2022, compared to the $12.3 billion in 2018. Looking at U.S. industry growth, recreational and medical sales could surge up to $30.4 billion by 2023, according to the Marijuana Business Factbook.
A major hurdle to the growth of cannabis has been legalization, but with more U.S. states easing rules on marijuana usage, whole new markets are opening up. Currently, 47 states and Washington D.C. have legalized cannabis in one form or another. Specifically, 11 states and D.C. legalized usage for adult use while 22 states specified for medicinal use only and 14 states allow for CBD only. Close to 99% of the U.S. population lives in states with some form of legalized cannabis access. Additionally, cannabis is now legal in some form in 21 countries.
Cannabis is also experiencing a renaissance in the field of medicine. There are over 100 naturally occurring compounds or cannabinoids, with three FDA approved drugs using cannabinoids and more in the works. Cannabinoids have been proven as pain reduction, anti-inflammatory and anti-microbial, among other benefits.
As investors consider cannabis investments, Timothy Seymour, Portfolio Manager, Amplify Seymour Cannabis ETF (CNBS), helped de-mystify some of the more common misconceptions about cannabis. For example, he pointed out that cannabis investing is more about brand building and management team execution than it is about growing the plant. Cannabis investing is also more than a simple top-down investment story as selection has never been more important in the cannabis space. Specifically, he warned that some publicly traded companies are operating in violation of federal law and could be subject to liabilities.
As a way to help investors better access the growing cannabis industry, Amplify ETFs recently launched the actively managed Amplify Seymour Cannabis ETF (NYSEArca: CNBS). CNBS utilizes a top down and bottom up analysis performed by Seymour, an early-stage cannabis investor. The fund’s analysis will be used to determine the holdings and weightings of the diverse portfolio of cannabis stocks held by the ETF. It will not invest in any company that is deemed to be violating any federal or state laws.
The new cannabis ETF has a purity mandate which requires 80% of the ETF’s assets to be invested in companies with 50% or more of their revenue from the hemp and cannabis ecosystem as well. The portfolio includes exposure to cannabis hemp plant through pharma, biotech, cultivation and retail, hemp products, and cannabis-infused products; support through agricultural technology, real estate and commercial services; and ancillary exposure through consumption devices, investing and finance, and technology and media. For example, among its top holdings, CNBS includes names liek Aurora Cannabis, Canopy Growth, GW Pharmaceuticals, Organigram Holdings, Hexo Corp, Tilray, Canaccord Genuity Group, Canopy Rivers, Zynebra Pharmaceuticals and The Flower Corp.
Financial advisors who are interested in learning more about the cannabis industry can watch the webcast here on demand.