AdvisorShares, a U.S.-based investment management firm that currently offers 16 different actively managed ETFs, just filed with the Securities and Exchange Commission to bring a new cannabis-focused fund to the market.
While AdvisorShares currently offers the AdvisorShares Vice ETF (NASDAQ:ACT) which is approximately 33% exposed to the cannabis sector, the proposed AdvisorShares Pure Cannabis ETF would offer investors a more pure-play approach to gaining exposure to the green rush.
AdvisorShares Pure Cannabis ETF Details
If the AdvisorShares Pure Cannabis fund is approved, it will trade on the NYSE under the ticker symbol ‘YOLO’. Ticker symbol aside, the SEC filing also gave prospective investors a preview of what may be coming.
“The Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in securities of companies that derive at least 50% of their net revenue from the marijuana and hemp industry or that are registered with the DEA specifically for the purpose of handling marijuana for lawful research and development of cannabis or cannabinoid-related products and in derivatives or other instruments that have economic characteristics similar to such securities.”
Since cannabis remains illegal at the federal level, many federally-regulated banks and financial institutions have faced major difficulties in creating and operating marijuana-related ETFs. Specifically, most custodial banks that hold the underlying baskets of securities on behalf of ETF issuers have no interest in taking custody of cannabis-related stocks.
That’s why the AdvisorShares Pure Cannabis fund “will use derivatives, including total return swaps, index swaps, equity basket swaps, or futures, to seek exposure to U.S. and foreign cannabis-related equity securities” in addition to making direct investments in exchange-listed securities.
“Cannabis stocks may be categorized among a wide variety of sectors and industries including agriculture, biotechnology, pharmaceuticals, real estate, retail, and finance. The types of companies that may engage in cannabis-related business include companies that conduct medical research, produce drug products, manufacture hemp products, or engage in agricultural activities, real estate activities, or financial services activities. The terms “marijuana” and “cannabis” are used interchangeably. Hemp refers to the industrial/commercial use of the cannabis stalk and seed for textiles, foods, papers, body care products, detergents, plastics and building materials. Cannabinoids are the chemical compounds secreted by cannabis plants. Cannabinoids can also be synthetically produced chemical compounds and used in lawful research and development of prescription drugs or other products utilizing cannabinoids as an active ingredient. The Advisor believes that continued legislative changes and social acceptance of cannabis in its various formats could lead to significant growth in cannabis-related public corporations. Companies involved in cannabis-related business could also benefit from significant merger and acquisition activity as the cannabis market matures. The Fund will only invest in companies that engage in cannabis-related business that is permitted by national and local laws of the relevant jurisdiction.”
Regarding strategy for this actively-managed cannabis ETF, AdvisorShares was pretty vague:
“The Advisor may use a variety of methods for security selection. As the Fund primarily focuses on certain industries, the Advisor intends to select companies with dominant positions in their respective markets, or those in unique positions for growth and expansion. The Advisor will utilize numerous outside analyst ratings and stock selection rating tools. In addition, the Advisor may invest the Fund’s assets in lesser-known companies that the Advisor believes have a unique opportunity for growth. At times, the Advisor may aim to buy certain out-of-favor stocks believed to be at prices below their future potential value, as measured by the Advisor or outside analysts. The Fund may sell a security when the Advisor believes that the security is overvalued or better investment opportunities are available, or to limit position size within the Fund’s portfolio.”
If approved, YOLO will be the second cannabis-focused ETF in the United States. Currently, the only U.S.-listed option is the indexed ETFMG Alternative Harvest ETF (NYSE:MJ), which has attracted nearly $900 million in AUM. As the Securities and Exchange Commission reviews the recently filed prospectus, be sure to subscribe to updates here so you never miss an important update.
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