Potential investors should be aware that while MJ’s underlying index may cover businesses that are legally engaged in activities related to cannabis, the benchmark does not include those that directly cultivate, produce or distribute marijuana or products derived from marijuana, unless such activities become legal under U.S. federal and state laws.
“Since marijuana is still federally illegal and the Cole Memorandum was rescinded by the Justice Department, banks are extremely reluctant to do business with any cannabis company, even if it doesn’t ‘touch the plant,’” according to Green Market Report. “If Alternative Harvest can’t replace the bank and find another custodian, it would more than likely be forced to close the fund and liquidate the holdings it has already amassed.”
Liquidity is another concern facing aspiring marijuana ETFs. In the U.S., many weed stocks are not listed on major exchanges, such as Nasdaq or the New York Stock Exchange.
“Most of the cannabis stocks in the U.S. are traded in the OTC Marketplace. There are a handful of biotech stocks traded on the NASDAQ Exchange (NDAQ) that have a cannabis component,” reports Green Market. “The New York Stock Exchange (NYA) is also hesitant to list cannabis stocks, but a few have managed to squeeze their way in the door. However, the majority of pure cannabis stocks are at the OTC.”
For more information on new fund products, visit our new ETFs category.