So far this year, one of the most significant developments for the cannabis industry is related to the creation of an Exchange Traded Fund (ETF) that is levered to the US market.
AdvisorShares Pure US Cannabis ETF (Ticker: MSOS is the first of its kind and we are favorable on the focus on the US market. A few years ago, we were cautious with the creation of ETFs that are levered to the Canadian cannabis industry due to the valuations that were associated with Canadian Licensed Producers (LPs) and the passive nature of the fund.
ETFs are an attractive investment vehicle for those who want leverage to a basket of companies. These investment vehicles are typically invested in more than 10 companies and is supposed to provide better diversification.
When compared to Canadian LPs, leading US cannabis companies are generating more revenue and are operating in a market where the plant is still considered to be illegal. The growth prospects that are associated with the US cannabis market are much more attractive than the Canadian market and we expect the ETF to generate significant traction.
Over the long term, we believe that the US cannabis market is well positioned to capitalize on international markets (once cannabis is legalized at the federal level in the US). Although Canada has a head start on the US, the poor rollout of the recreational and international market by Health Canada has stifled growth.
Going forward, we expect the US cannabis market to be the most attractive vertical of the entire industry and will monitor how the presidential election impacts the industry in the near term. If cannabis is legalized or decriminalized in the US, we expect the fund to be an outperformer and are favorable on structure of it.
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