Will You Buy A Marijuana ETF?

Matt Thalman - INO.com Contributor - ETFs

The Horizons Medical Marijuana Life Sciences ETF (HMMJ) will begin trading on the Toronto Stock Exchange today, April 5th 2017. This will be the first ETF that will have exposure to companies listed in North America that operate in the medical marijuana bioengineering and production fields.

Many investors have been interested in the industry for a number of years, but haven’t had the opportunity to invest in it through a diversified manner. This ETF solves that big hurdle.

While it is unknown how many stocks the fund will hold, or who exactly will be in it, investors can be assured this ETF boasts some very serious growth predictions. Sales in the marijuana industry grew by 30% in 2016 and according to Arcview Market Research; the industry will triple in the next four years.

Furthermore, as my colleague Michael Vodicka pointed out a few weeks ago, the entire sector is currently trading well off its 52-week highs. Michael even noted that the marijuana index has fallen to recent support levels in the past, only to rebound nicely. He believes the rebound is soon to happen.

Regardless though of what the charts and historical price movements tell investors, the fact of the matter is more and more American’s believe marijuana should be used for medical purposes. Those beliefs are what started the industries growth years ago.

More so, with more and more US State’s legalizing or decriminalizing marijuana, the industry will only continue to grow. Currently those who are willing to invest in the industry, find themselves investing at the very early stages of the life cycle. Being early to a party can be a risky move, sometimes those who do, get burned. But, it can also be the most profitable move.

The problem has been trying to cherry pick which companies will make it and which ones will not. An ETF helps solve that problem.

The marijuana ETF is going to have its struggles and it certainly will own some big losers over the next few years. But, as long as the managers pick a few winners, investors should do well.

But, as usual, check the expense ratio, how much the portfolio is turning over, and what the average size of the companies it owns. This information should give you a little better understanding about what you are paying for and how much its costing you.

If the metrics come back for HMMJ and they don’t look good, you can wait a few more weeks until the Emerging AgroSphere ETF by ETF Managers Trust begins trading, it may offer a lower price and less risk. The Emerging AgroSphere ETF plans to invest in companies focusing on medical marijuana and the production and sale of hemp and hemp derived products.

For some investors, investing in any ‘Sin Stock’ is out of the question. You will not find tobacco, casino, alcohol, or defense stocks, just to name a few, in some individual’s portfolios. Most likely, those people will not be buying marijuana ETF either, and that’s fine.

But for those of you that don’t mind owning a ‘Sin’ stock, holding a small position in a marijuana ETF is not the worst idea. With the diversity an ETF offers and the ability to get in on the ground floor of an emerging industry, investors who don’t even consider just a small portion of their portfolio to this sector, may be doing themselves one of the biggest disservices of their investing lives.

Once the marijuana ETF’s begin trading, check back for my opinion on which one is the best to own.

Matt Thalman
INO.com Contributor – ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not own shares of any equity mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.


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