Getting started into investing, especially with the cannabis industry, can be intimidating. It might even deter some people. But that won’t stop people from trying. Keep in mind that the cannabis adult-use market will be projected to have a retail value of $4.1 billion by the end of 2021, according to CIBC analysts. (1)
Why the cannabis industry?
There are a lot of different options to choose from and because of that, it can make the process of picking which stock to buy confusing. The options include Canadian cannabis stocks, US stocks and other stocks internationally. There are also options between recreational cannabis and legalized medicinal cannabis.
Let’s get one thing clear about the stock market, though. There are no guarantees in this seemingly lawless land. There are just as many ways to make money as there are to lose money, so remember to always exercise caution while investing in cannabis industry.
What are ETFs?
Now this is where an exchange-traded fund (ETF) comes into play. One method to minimize the risk that comes with investing in individual stocks is to instead invest that money into an ETF. ETFs help investors by exposing them to the industry as a whole, especially one that is estimating double-digit growth for the rest of the decade.
So what is an ETF? ETFs are a type of investment fund or security that can hold and track multiple different assets or even other securities. ETFs are similar to mutual funds, with the exception that ETFs can be traded throughout the day on stock exchanges. There are even some ETFs that can be structured to track different investment strategies.
Horizons Marijuana Life Sciences Index ETF
Let’s talk about Marijuana ETFs. One Canadian ETF called the Horizons Marijuana Life Sciences Index ETF is currently being traded on the Toronto Stock Exchange. This ETF focuses mainly on the medicinal cannabis scene, perfect for anyone who’s looking to get into the medicinal side of things.
Horizons has over 40 holdings within the fund’s assets, with a wide range of different companies. These include pharmaceuticals, cultivators and plant fertilizers. Even though Horizons have over 40 holdings, seven companies make up over 60% of the ETF. These companies are Aphria, Canopy Growth and Cronos, just to name a few.
AdvisorShares Pure Cannabis ETF
Using another ETF as an example, let’s take a look at AdvisorShare’s Pure Cannabis ETF. It trades on exchanges under the ticker YOLO and it is the first actively managed cannabis ETF. YOLO focuses on small to mid-cap stocks that range from domestic to foreign. Examples of the stocks being held are HEXO and OrganiGram Holdings.
Good news as an investor
The thing about marijuana ETFs is that most of the top ETFs that can be found will share the same holdings for the most part. This is due to the fact that there aren’t many publicly traded companies that deal with cannabis products.
In any case, the growth potential of individual stocks remain. Cannabis ETFs minimizes the risk of individual stocks while also providing insight on a potential stock that could take off. And remember, marijuana stocks should be part of an investment portfolio—be sure to diversify when possible.