Speculating on That Old Herb

You don’t need me to tell you that the market is currently taking a beating.

While there have been some days where it seems that the bulls have defeated the bears and the market rose a bit as a result, overall, it seems that the bears are still driving the market bus. Indeed, only a quick glance at the headlines of any major newspaper or news site reveals the causes of the bears’ iron grip: “higher-for-longer” Fed policy, the persistence of inflation and war in Ukraine and the Middle East.

Such a negative market milieu has impelled many investors to turn to defensive sectors in order to protect their hard-earned money. Others have turned to speculative stocks, which, though a great risk, have the potential for big rewards. One such field is that of marijuana stocks.

Like I discussed in my ETF talk last week, the future of marijuana legalization remains up in the air. While several states have made moves towards decriminalization and even legalization, a move toward reclassifying the drug at the federal level has stalled. But the winds of change may be blowing in a positive direction with the passage of the Secure and Fair Enforcement Regulation (SAFER) Banking Act. Even so, until we get more clarity about the future of marijuana on the federal level, investing in the green herb will always be an inherently risky endeavor.

However, one exchange-traded fund (ETF) aims to reduce the risk, at least to some degree, through tracking a basket of U.S. stocks or swap contracts related to the domestic cannabis and hemp industry. The ETF in question is the AdvisorShares Pure US Cannabis ETF (NYSEARCA: MSOS).

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MSOS’s managers aim to achieve this goal by selecting only legal and domestic cannabis equities from both small-cap and mid-cap companies and by requiring that all companies in MSOS’s portfolio must be registered with the Drug Enforcement Administration (DEA) specifically for the purpose of handling marijuana for lawful research and development.

Some of the stocks currently in the portfolio include Green Thumb Industries Inc. (OTCMKTS: GTBIF), Curaleaf Holdings Inc. (OTCMKTS: CURLF), Verano Holdings Corp. (OTCMKTS: VRNOF), Trulieve Cannabis Corp. (OTCMKTS: TCNNF), Terrascend Corp. (OTCMKTS: TSNDF), Cresco Labs Inc. (OTCMKTS: CRLBF) and Glass House Brands Inc. (OTCMKTS: GLASF).

As of Oct. 31, MSOS has been down 29.47% over the past month and down 0.36% for the past three months. It is currently down 19.89% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $457 million in assets under management and has an annual report expense ratio of 0.80%.

In short, while MSOS does provide an investor with a way to invest legally in marijuana stocks, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

I am always happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.