ETF Trends CEO Tom Lydon discussed the Cambria Cannabis ETF (TOKE) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
TOKE seeks capital appreciation from investments in the global equity markets that have exposure to the broad cannabis industry. The fund targets investing in approximately 20 to 50 of the top companies with exposure to the broad cannabis industry based on Cambria’s determination as to their exposure to the industry. TOKE generally expects to invest in companies across a broad market capitalization spectrum of micro-, small-, and mid-capitalization stocks.
As Jaffe points out, marijuana stocks have been very popular in 2019. With that in mind, talking about cannabis stocks means talking about getting into a small niche. So, when looking at ETFs in this area, Lydon explains how there are actually five related ETFs out there, all different in their own way, and they generally seem to be getting more attention from investors and advisors, similar to cryptocurrency. Lydon points out how prohibition from the 30s held things back for alcohol, only for the repeal to allow it to go through the roof at the market level.
“A lot of people think cannabis might be the next similar situation where we see continued uses of cannabis in a variety of different ways,” Lydon states. “We’re not just talking about consumption, but things like cosmetics, bio-pharmaceuticals, supplements, etc. There are a lot of people who are using the cannabis-related extract to help their dogs with aches and pains. So, there’s a lot of different uses. It’s not just somebody rolling it and smoking it. They continue to be creative, and the healthcare industry is embracing it.”
Additionally, Lydon also notes how there’s been a considerable correction this year when it comes to cannabis-related stocks. In the past few months, there hasn’t been as much of a fever of investors talking about it. However, this means the ETFs could be 30 to even 50% on sale off of their highs (no pun intended).With that, it’s important to think about the opportunities long-term. Moreover, guidance for clients who address this topic would mean discussing cannabis ETFs as either a tactical strategy or a long-term one, as there will certainly be more publicly traded firms in this space as well.
Cannabis Investing is Similar to Crypto
“Like cryptocurrency, advisors want to be able to talk to their clients about them, be knowledgeable enough to talk about the pros and cons, but also have some type of strategy, so clients don’t go off and do something stupid themselves,” Lydon adds.
ETFs make plenty of sense for long-term investments, and TOKE is a good pick for Lydon, as he explains how it has a low annual fee. It’s only 42 basis points, making it the least expensive ETF out there. Lydon also describes how some of the other ETFs tend to be heavily weighted into a handful of particular companies, as opposed to these, which tend to be more equal-weighted, meaning investors won’t be making big bets on specific companies.
In terms of where TOKE can fit into a portfolio, Lydon states how it’s certainly not a trend-following buy right now, as everything is way below its 200-day average. Also, as far as long-term goes, if investors feel cannabis and the related companies in that industry are going to do well in the next 5-10 years, it’s not a bad idea to put in some money now (1 or 2% of your overall portfolio).
If it does continue to go down a bit, the opportunity to get in at a lower price could pay off. That in mind, like crypto, this isn’t something going away. “It’s not a fad,” Lydon adds. Cannabis stocks will be around for a long time.
“You’ve got this next generation and this whole wealth transfer that’s going to happen in the coming decades. Think about how you can talk to your clients’ kids about the future of investing,” he said. “This is another ETF that could help future-proof your portfolio because you’re not going to find cannabis ETFs in the S&P 500.”
When asked if TOKE getting to a point where its above its 200-day average would make it a trend-following play, Lydon states how it could fall in with thematic ETFs to become as such. The popularity suggests it could happen. At the same time, TOKE would be an excellent play to exchange for, if the reliance on long-term is essential, in addition to some tax strategies to work with.
Listen To Tom Lydon Discuss What Makes TOKE Rank High:
For more podcast episodes featuring Tom Lydon, visit our podcasts category.