The first U.S. marijuana based ETF started trading on Arca on Monday. The ETFMG Alternative Harvest ETF (MJX) is made up of many Canadian stocks focused on medical marijuana, and peculiar enough, with big tobacco as well.
ETF popularity is surging and may be worthwhile for investors interested in the cannabis industry since a weighted average is likely to be less volatile than an individual stock. The equity market often pairs instruments in ways that do not make sense to the general public, and this may be one of those instances. With a mixture of medical marijuana companies and tobacco companies like Philip Morris, the blend seems a contradiction.
The key here is that all of these companies operate legally. Although pot shops in the U.S. tend to make money hand over fist, they are not directly represented in this index, as their activities are not sanctioned at the federal level.
The portfolio’s largest holdings include Cronos Group, with a weight of 6.23%; Canopy Growth, at 5.9%; GW Pharmaceuticals, at 5.5%; CannTrust Holdings, at 5.37%; and MedReleaf Corp., at 5.22%. Half of the fund’s assets are invested in the health care sector, with consumer staples weighted at 31% and materials at 9%. Canada, where marijuana is legal at the national level, has a 41% weighting in the index, while U.S. companies are weighted at 34% and U.K. companies at 9%.
Interestingly, the fund holds big tobacco names such as Imperial Brands, Philip Morris, Altria Group and British American Tobacco. Despite their size, those all rank in the bottom half of the index when it comes to their respective weights.
In fact, “Big Tobacco” has been eyeing the marijuana space for years, by all accounts, and there is significant synergy between the two industries, especially with the rise of e-cigarettes and vaping.
If the creation of MJX is any indication of the future, many medical cannabis advocates may be disappointed to see big tobacco sink its fingers into the marijuana industry. Would you buy a medical marijuana ETF if it also had tobacco companies in it as well?
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