ETFs
Investors wary of US cannabis ETFs despite recent rally
Aadil Zaman, Partner at the Wall Street Alliance Group, explains why the market should retreat on the ‘Making Money’ question.
New proposed federal rules govern marijuana have so far failed to generate new buying interest in exchange-traded funds (ETFs) that track the stocks of North American cannabis companies, despite strong performance this year.
Marijuana ETF and cannabis stocks soared last week, after the U.S. Department of Justice announced plans to reclassify marijuana as a less dangerous drug. Big winners include the Roundhill Cannabis ETF, the AdvisorShares Pure Cannabis ETF, and the Amplify US Alternative Harvest ETF, all of which post year-to-date gains of 29.6% to 36.6%, placing them among the best performing ETFs of 2024.
However, these gains are not yet translating into asset growth for many funds, suggesting that ETF investors are hesitant to place large new bets on the sector.
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Of the nine Cannabis-focused ETFs In the US market, only two – the AdvisorShares MSOS 2x Daily ETF and the AdvisorShares Pure US Cannabis ETF – have seen inflows since the Justice Department’s announcement, according to data from LSEG Group.
“The rallies we saw were driven by cannabis-focused investors who were waiting for this news but already have money in a handful of their favorite stocks,” said Steve Sosnick, market strategist at Interactive Brokers.
A cannabis grower tends to his plants on his farm in Humboldt County, California, August 28, 2016. (Reuters/Rory Carroll / Reuters Photos)
Some analysts believe that the distrust of ETF Investors getting into cannabis-related funds could mean a shake-up is looming for the segment. Already this year, GlobalX Funds closed its $29 million GlobalX Cannabis ETF. GlobalX declined to comment on the closures, but analysts noted that the removed ETFs had been slow to accumulate significant assets.
“It’s a relatively crowded niche offering,” said Todd Rosenbluth, head of research at Vetta Fi. “If demand does not materialize in 2024, we could see additional closures.”
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But analysts also said funds could start cashing out if the Justice Department’s proposal to reclassify cannabis prompts a new wave of investors to focus on the industry.