The Cannabis ETF Adds cbdMD to Holdings List

On Tuesday (August 20), cannabidiol (CBD) brand firm cbdMD (NYSEAMERICAN:YCBD) confirmed its addition to a US-based exchange-traded fund (ETF): the Cannabis ETF (ARCA:THCX).

The North Carolina-based cannabis company will join 35 other holdings in Innovation Shares’ pure-play ETF, which follows the Innovation Labs Cannabis Index.

Martin Sumichrast, co-CEO of the company, said in a press release that cbdMD’s inclusion in the ETF will prove to be beneficial to the company’s growth.

“As a hemp derived CBD product, this is another milestone for our company that will offer us increased exposure to the US investment market and provide additional momentum in building on our brand,” Sumichrast explained.

As of Tuesday, 0.52 percent of the ETF’s total weightage was taken up by cbdMD, and the fund had US$16.9 million in net assets.

The Cannabis ETF opened on Tuesday at US$21.23. At the end of the trading session, the fund had dropped by less than 1 percent in value for a closing price of US$21.04.

Other holdings in the ETF include cannabis juggernauts like Canopy Growth (NYSE:CGC,TSX:WEED), Aurora Cannabis (NYSE:ACB,TSX:ACB) and Tilray (NASDAQ:TLRY).

Marijuana ETFs have been gaining traction in the North American investment markets recently. Several funds have launched in 2019 alone, the most recent being the Amplify Seymour Cannabis ETF (ARCA:CNBS) from Amplify ETFs last month.

Innovation Shares’ ETF itself is a fairly new addition to the marijuana landscape, only having launched in July as the first passively managed cannabis ETF.

Marijuana ETF market gains new competitors in 2019

So far in 2019, investors have also seen the start of the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the Cambria Cannabis ETF (CBOE:TOKE) on US exchanges.

In Canada, the Evolve US Marijuana ETF (NEO:USMJ) from Evolve Funds Group and the Horizons US Marijuana Index ETF (NEO:HMUS) from Horizons ETFs Management both launched on the NEO Exchange earlier this year.

In a previous interview with the Investing News Network (INN), Kip Meadows, CEO of fund administration firm Nottingham, spoke about the emerging cannabis ETF phenomenon.

“It’s pretty evident that there’s an unfulfilled demand in the investment world in (terms of) how to get some exposure to the cannabis industry,” he said.

Nottingham works with the Cannabis ETF and the Amplify Seymour Cannabis ETF as a transfer agent, fund account and administrator.

Other cannabis cannabis experts, however, aren’t as impressed with the recent ETF craze in cannabis.

In their weekly column, New Cannabis Ventures executives Alan Brochstein and Joel Theard said that most ETFs don’t offer enough diversification, favoring holdings of large Canadian licensed producers and neglecting to expose investors to US-based multi-state operators.

“So far, ETF managers have shown a weak understanding of the sector and their holdings, as they are typically fund managers rolling the dice on a new hot theme,” the pair wrote.

Brochstein is also an analyst for the marijuana investment space at 420 Investor.

Apart from internal diversity, there are also concerns about oversaturation for cannabis ETFs.

Mark Noble, senior vice president of ETF strategy with Horizons ETFs, previously shared his opinion with INN on the growing number of ETFs hitting the market. “(Upcoming funds are going to) have a very hard time distinguishing themselves from the already established ETFs in Canada and the US,” he said.

Elliot Johnson, chief investment officer with Evolve Funds Group, shares that sentiment and told INN that a glut may cause the ETF space to stabilize.

“There’ll be some point of saturation where people will stop entering into the cannabis ETF market because they feel the ground is well covered and they’ve got nothing to contribute,” said Johnson.

For now, the marijuana ETF space is only set to increase with more participants. AdvisorShares has filed for a second actively managed cannabis fund, the AdvisorShares Pure US Cannabis ETF, which will focus entirely on the US marijuana market and trade on the NYSE Arca under the ticker MJUS.

“More people selling marijuana equities is only going to create more interest in the space, and then people will naturally gravitate towards our products,” said Noble.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.