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PassiveBeat: dope or false hope from marijuana ETF?

PassiveBeat: dope or false hope from marijuana ETF?

by Tanzeel Akhtar Mar 10, 2017 at 09:56

Tune in, chill out, buy the ETF.

Marijuana, once the calling card of the counterculture, is marching towards Wall Street in the form of a dedicated exchange traded fund (ETF) which investors will be able to access once it gets Securities and Exchange Commission (SEC) approval.

ETF Managers Group has filed to launch the fund which will target the medical marijuana and industrial hemp industries.

The Emerging AgroSphere ETF (insert your own stock market ticker jokes here – DOPE/HASH/WEED) reflects the changing legal status of marijuana, in the US if not elsewhere. Apart from its use for medicinal purposes, the herb can be legally consumed in eight states.

In some states such as Colorado, it’s sparking a new mini-boom as businesses set up to make the stuff and tourists come in to smoke it.

But the fund is concentrating strictly on the medical side with an underlying index will aim to track companies that engage in research on products such as cannabidiol, and cannabis derivatives for use in prescription drugs and in companies that produce or sell derivatives of industrial hemp.

Like most investment decisions, weighing up whether to take a punt on this ETF is best done with a clear head. And the launch is being met with some skepticism.

Laith Khalaf, senior analyst at Hargreaves Lansdown, describes the fund as an incredibly specialised product tracking an obscure custom-built index.

‘I would suggest it is not one for your typical investor unless they are well acquainted with the index and the companies within it,’ he says. 'The vast majority of investors are better off sticking to low cost mainstream ETFs and tracker funds that replicate major indices.'

Laurent Kssis, director at CEC Capital and an ETF trading consultant, also has his doubts, even though the Marijuana Index is currently performing quite nicely. And as he points out, 'the market is in demand for yield, diversification and variety, so the chances are favourable for a listing if they can keep the TER [total expense ratio] below 150bps' [1.5%].

But even he has his doubts. ‘Some of the companies [in the index] seem to be in dire need of funding and the key will be how long can they survive before they run out of cash.’

But there’s no need to place your best just yet. The SEC approves ETFs on a case-by-case basis which can often be costly and take a long time. The Bitcoin Trust ETF (COIN) filed over three years ago by Cameron and Tyler Winklevoss is still to be reviewed.

But if the Emerging AgroSphere ETF does make the grade, it will join a growing list of ultra-niche ETFS we’ve seen in recent years including those tracking the cybersecurity industry (ticker: HACK) and robotics (ROBO).

In the dining industry we’ve also seen two ETFs - MENU and BITE – although the latter closed due to lack of investor appetite.

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Comments  (1)

  • richard tomkin: 

    Widows and orphans will be crying out for this.Gives a whole new meaning to passive investment.

    00:07 on 11 March 2017

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