Cannabis pharmaceutical growers dominate this marijuana ETF, although it also holds a diversity of other industry firms, from bio-pharmaceutical companies to support firms offering lighting technology and fertilizers. The fund currently pays a dividend by lending shares to short sellers.
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ETFMG ALTERNATIVE HARVEST ETF $33.88 (New York symbol MJ; Units outstanding: 35.95 million; Market cap: $1.2 billion; TSI Cannabis Quality Rating (CQR): ; www.etfmj.com) invests in firms that are legally involved in the cannabis industry.
The fund tracks the Prime Alternative Harvest Index, which measures the performance of companies that will benefit from the spreading legalization of cannabis.
Canadian companies make up roughly 55% of the ETF’s portfolio, followed by the U.S., 27%, the U.K., 13%, and other countries, 6%. The fund invests in cannabis growers as well as bio-pharmaceutical companies and support firms such as lighting technology and fertilizer companies.
Despite its 44 different stocks, the ETF’s holdings are still highly concentrated in cannabis pharmaceutical growers (63% of total assets).
The top 10 holdings are Aurora Cannabis (Canada, 9.7%), GW Pharmaceuticals (U.K., 8.9%), Cronos Group (Canada, 7.1%), Canopy Growth (Canada, 6.7%), Tilray Inc. (Canada, 6.2%), Green Orange Dutchman (Canada, 5.1%), Hexo Corp. (Canada, 4.5%), Aphria (Canada, 4.0%), CannTrust Holdings (Canada, 3.8%), and Corbus Pharmaceuticals (U.S., 3.5%). The fund is rebalanced each quarter.
The ETF launched in December 2015. It charges a relatively high MER of 0.75%, but has a reasonable size. An average of $25 million in units trade daily, which provides good liquidity.
The fund has gained 30.0% since the start of this year, while the broad-based S&P 500 Index rose 13.8%.
Most of the stocks that the ETF holds don’t pay dividends. However, it earns money by lending those stocks to short sellers. The short sellers then sell them, hoping to buy them back later at a lower price.
Thanks to those income source, the ETF has now paid four variable quarterly distributions since June 2018. The trailing 12-month total payment of $0.63 yields 1.9%. However, cash inflows from short sellers are highly volatile and the ETF’s distributions (and yield) could suddenly drop.
The ETFMG Alternative Harvest ETF has a 3-Leaf Cannabis Quality Rating (CQR).
For investors who want exposure to marijuana markets, this ETF cuts the risk of investing in individual cannabis stocks. That also means it holds stocks that we do not like. The ETF is a speculative buy for aggressive investors who want exposure to the marijuana industry.
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