How to Invest in Cannabis ETFs
April 6th, 2017
News, Top News
As the accessibility of medicinal and recreational marijuana increases across the country, there’s growing interest by investors with respect to the cannabis industry’s viability in the stock market. And investors are smart to be paying attention as the performance of marijuana stocks has been strong in recent years, particularly in 2016, and is projected to continue growing into 2017 and beyond.
Given marijuana’s high potential in the stock market, it makes sense that many individual investors are setting their sights on Exchange-Traded Funds (ETFs) as a means of diversifying their exposure in the industry.
What are ETFs?
According to Investopedia, an ETF is, “a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange.”
ETFs’ prices fluctuate from day-to-day as they’re bought and sold, coming with generally higher daily liquidity and lower fees than mutual funds, which makes them an attractive option for those investing individually.
In a nutshell, ETFs make it easier to invest in a diversified portfolio at a lower cost than buying a bunch of individual stocks, so it’s no surprise that individual investors have their sights set on upcoming ETFs for cannabis.
Upcoming Plans to Launch a Marijuana ETF
The fact that there’s not yet a marijuana ETF is actually a good thing for investors as it means they can get in early and reap the benefits of untapped territory. And that territory isn’t likely to be untapped for long.
ETF Managers Group, a company helping ETF sponsors introduce their products to the market, recently filed plans for the Emerging AgroSphere ETF. If this particular ETF goes through, it’ll track an index by BE Asset Management.
And while this is a promising development, investors should keep in mind that the Emerging AgroSphere ETF will focus solely on medical marijuana versus the recreational marijuana markets erupting across the country.
How to Buy a Marijuana ETF Once it Becomes Available
As of now, in order to purchase any ETF, you must do so through a broker like TD Ameritrade, Scottrade, Vanguard, etc. This is seen as a major disadvantage of ETFs to some investors as it means paying brokerage commissions that can offset an ETF’s lower cost advantage.
That said, there are a number of things you can do to increase an ETFs advantage, such as investing more money — the more you invest, the less the broker fees will impact you overall — as well as going with one of the many lower-fee and discounted online brokers now available.
Benefits and Drawbacks of ETFs
The benefits of ETFs are plenty when it comes to individual investment. Primarily, purchasing an ETF is a simple way to diversify your exposure to a booming industry, such as cannabis. Additionally, they tend to offer lower operating costs than open-end funds, more flexible trading capabilities, higher transparency, and increased tax efficiency in taxable accounts.
While many experts argue that ETF benefits far outweigh the drawbacks, there are, indeed, some potential shortcomings investors should be aware of.
As mentioned, one of the major drawbacks of ETFs is that you must go through a broker and their fees in order to purchase it. Depending on how much you’re investing, ETFs could theoretically cost more than the alternatives. Moreover, when it comes to cannabis ETFs, the largest holdings will be from the biggest companies, like GW Pharma, which will somewhat limit the diversification.
When all is said and done, despite some drawbacks, marijuana ETFs carry a lot of potential when it comes to minimizing risks and costs for individual investors, as well as a degree of diversification exposure in this largely untapped, emerging industry.
If you’re eager for a cannabis ETF portfolio to become available to you, by most accounts, you won’t have to wait for much longer. In the meantime, there are a number of alternatives you can explore until that time comes.
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This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.
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