Cannabis ETF Isn't High Yet, But It's Rebounding

It's still too early in 2020 to proclaim the cannabis equity and exchanged traded funds rebound legitimate, but at least a comeback is materializing. The still maturing resurgence is important following a year in which essentially all of the U.S.-listed cannabis funds were among 2019's worst-performing ETFs.

What To Know

The AdvisorShares Pure Cannabis ETF YOLO, the first actively managed cannabis ETF in the U.S., is one of the funds in this category that's on the mend, sort of, to start 2020. YOLO's 5.26% gain this month is much needed after the fund was pummeled following its debut last April.

YOLO is one of the only cannabis ETFs with exposure to U.S.-based multi-state operators (MSOs), a trait that could stoke the fund's recent ascent.

“YOLO invests in exposure to United States multi-state operations (MSO’s) including those operating in Illinois: Green Thumb Industries GTBIF, Cresco Labs CRLSF, and Curaleaf CURLF,” portfolio manager Dan Ahrens wrote in a recent note.

YOLO obtains its MSO exposure via swaps.

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Why It's Important

Another marquee holding in YOLO is Innovative Industrial Properties, Inc IIPR, the original cannabis real estate investment trust.

“It’s another cannabis-related company doing important business in Illinois. As a U.S.-listed REIT, it cannot be held in an index-based cannabis equity ETF,” said Ahrens. “We hold it because, as an actively managed ETF, we can. I’ve seen lots of articles touting Illinois’s successful cannabis sales, but also inaccurately depicting cannabis stocks and cannabis funds as basically all the being the same. They are not!”

What's Next

Another benefit offered by YOLO is that the fund is significantly underweight Canadian cannabis stocks, including some of the laggards that dominate passively managed rivals. In fact, Tilray TLRY and Aurora Cannabis ACB combine for less than 2.5% of YOLO's roster.

“We greatly underweight Canadian companies Tilray, HEXO and Aurora, but still maintain small positions. They were terrible again in December – down double digits,” said Ahrens. “Like I’ve stated each month previously, since its launch on April 18 of this year, YOLO still has yet to experience any out-flow of shares (ETF redemption units). It makes me confident of our future upside. I think investors believe in YOLO’s active investment management and higher U.S. exposure not normally found in competitor funds in the cannabis space.”