Any industry that is taking giant strides does not miss ETF issuers’ eyes. The marijuana industry is on a tear lately. As per the source, cannabis-related stocks added about 236% in 2016. Probably this is why, Teucrium recently filed a product on this, though it did not mention marijuana clearly. The name of the product isTeucrium Emerging Medical Agriculture Index Fund (MEDA).
Inside the Proposed Fund
The fund looks to cover companies that are into medical agriculture or that offer support services to such firms, as per etf.com. Global stocks will get a place in it. A biotech company, a hydroponic or other production equipment supplier, an agricultural science company, a real estate, media or finance company giving support to an emerging medical agriculture business will be considered for the fund. The expense ratio of the fund is yet to be disclosed.
How Does It Fit into the Portfolio?
The medical marijuana industry has been growing by leaps and bounds lately and amassing investors’ interest. While medical usage of marijuana is legalized in many areas, lately there has been a surge in legalization in the recreational usage of marijuana in some U.S. states. In an election held in 2016, marijuana was declared legal for recreational and medical purposes in seven additional states.
Maine, California, Massachusetts, and Nevada all approved the legalization of recreational marijuana use. Florida, North Dakota and Arkansas are in favor of legalizing medical marijuana use and Montana has expanded the state’s medical marijuana laws.
Legal marijuana sales surged 34% to $6.9 billion in 2016 according to cannabis research firm ArcView. The firm expects the sales figure to skyrocket about 213% by 2021. Investment firm Cowen & Co. is also bullish on the space and expects legal marijuana sales to hit $50 billion by 2026. So, clearly it is a high-growth industry and an intriguing for money making (read: 6 Best Commodity ETFs of 2016).
ETF Competition
The road ahead for the product is smooth. It will not face steep competition, if at all it secures approval. This is because there are not many products on marijuana in the market right now. ETF Managers Group LLC announced that the first U.S. ETF to concentrate on marijuana stocks – the ETFMG Alternative Harvest ETF MJX – was launched on Dec 26.
The fund looks to track the Prime Alternative Harvest Index, which includes companies likely to benefit from the “increasing global acceptance of various uses of the cannabis plant.” Investors should note that the fund is not a new ETF. Tierra Funds changed the Tierra XP Latin America Real Estate ETF (LARE) into the Alternative Agroscience ETF. This fund is likely to emerge as a likely competitor to the newly-filed product.
Also, there is a fund called AdvisorShares Vice ETF (WA:ACT) which has about 20% exposure to Cannabis. There is yet another marijuana ETF, namely the Horizons Marijuana Life Sciences, but it trades on the Toronto Exchange under the ticker HMMJ.
Also, some biopharmaceutical companies may pose threats to the product as the fund mainly targets companies involved in marijuana dealings for medical purpose. If you consider that as a risk, keep a track on the likes of iShares Nasdaq Biotechnology ETF IBB, ALPS Medical Breakthroughs ETF (SI:SBIO) or SPDR S&P Biotech (MX:XBI) ETF XBI. All these funds charge 47 bps, 50 bps and 35 bps in fees. As a result, the proposed fund needs to be priced competitively (read: Big Changes to BioShares Biotech ETFs: Who's In, Who's Out?).
That said, the fund may get a regulatory approval. After all, the marijuana industry has already got its first ETF in the form of Horizons Medical Marijuana Life Sciences ETF, though it trades on the Toronto Stock Exchange (TSX). And Teucrium’s fund is not purely based on marijuana. Plus, Teucrium has previously tasted success in launching agriculture-based funds like Teucrium Corn Fund CORN, Teucrium Wheat WEAT, Teucrium Soybean SOYB and Teucrium Sugar CANE.
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