There’s a Smart New Way to Invest in Cannabis Stocks

Over the next decade, marijuana is on track to be one of the fastest growing industries. Although estimates vary wildly, worldwide sales could tally anywhere from $50 billion to $200 billion by the time 2030 rolls around. For context, global weed sales tallied just shy of $11 billion in 2018. It’s this rapid growth of an already popular industry that has investors piling into pot stocks…

However, the cannabis industry isn’t immune to that which plagues all next-big-thing investments. I’m talking about growing pains. To our north, regulatory issues have constrained supply and created huge bottlenecks. Meanwhile, in the U.S., high tax rates on legal product have made it difficult for licensed producers to compete with black-market growers on price.

Behold, the genius new way to invest in marijuana stocks

There will obviously be winners in the cannabis space, but (pardon the pun) weeding them out in the early going hasn’t been easy. That’s what makes what I’m about to tell you so exciting: There’s a smart new way to invest in cannabis stocks.

Earlier this week, AdvisorShares debuted a brand-new exchange-traded fund (ETF) focused on cannabis… but with a twist. Instead of following in the footsteps of existing ETFs and purchasing a hodgepodge of North American marijuana assets, biotech, and perhaps tobacco companies, the newly listed AdvisorShares Pure U.S. Cannabis ETF (NYSEMKT: MSOS) is solely focused on U.S.-based marijuana and ancillary pot stocks.

Why’s this such a big deal? To begin with, the United States is a considerably larger peak sales opportunity than Canada. For instance, licensed cannabis-store sales in Canada hit an all-time high of $153.7 million in June 2020. Extrapolated out a full year and assuming some modest sales growth as new dispensaries open, Canada could be generating perhaps $2 billion to $2.3 billion in annual pot sales.

Comparatively, California does more than that in a year all by itself. By 2024, an estimated 13 states, led by California, should be generating at least $1 billion in combined medical and recreational annual sales. Investors tend to follow the money, and right now, that money is absolutely leading to the United States.

Additionally, there are fewer supply constraints in the U.S. market. Whereas federal and provincial Canadian regulators have mismanaged the rollout of various products and dispensaries, most legalized states have done a pretty good job of ensuring that there’s an adequate presence of dispensaries and a reasonable system in place to get marijuana from grower to retailer. Though supply bottlenecks do exist in the U.S., they’re nowhere near as crippling as they’ve been to Canadian licensed producers.

Here’s what you’ll find in the AdvisorShares Pure U.S. Cannabis ETF

What, exactly, are investors getting themselves into if they choose to buy the AdvisorShares Pure U.S. Cannabis ETF? To cover the housekeeping aspects, you can expect a net expense ratio of 0.74%, which is pretty much on par with other weed ETFs and reflective of a fund that’ll be actively managed.

But what you really want to know is what this fund is holding.

According to the breakdown, close to 55% of all assets are in microcap and small-cap stocks, which means you can expect plenty of volatility, even in a diversified ETF. Investors can also expect a wide gamut of industry representation. Even though nearly 56% of all assets are tied up in multistate operators (MSO), the AdvisorShares ETF adds close to 11% in pot-focused real estate investment trusts (REITs), close to 8% focused on cannabidiol (CBD) companies, and almost 7% devoted to cannabinoid-based biotechnology.

Following its debut, the AdvisorShares Pure U.S. Cannabis ETF held 24 stocks, 18 of which had…

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