What Investors Need To Know About Marijuana ETFs

Video Length: 00:07:30

Marijuana stocks and ETFs have been on a wild ride this year. They soared earlier when California legalized sale of recreational marijuana and then sank after uncertainty created by AG Jeff Sessions’ announcement about the change in federal pot policy.

The first pure-play marijuana ETF in the US—the ETFMG Alternative Harvest ETF (MJX – Free Report) –has seen a lot of interest from investors. It is up about 25% since it started trading on December 26, 2017 and has gathered $358 million in assets.

Legal marijuana is a rapidly growing and evolving market. Legal marijuana sales were estimated to be almost $10 billion in 2017 and are projected to hit $24.5 billion by 2021.

29 states and the District of Columbia have legalized marijuana’s medical use and supply and eight states now allow marijuana for recreational use, but it remains illegal at the federal level. Obama-era policy allowed pot legalization by states by following a hands-off approach.

This new ruling has created a lot of uncertainty for cannabis businesses. In particular, it has made banking more difficult for marijuana businesses.

According to the journal, banks tend to follow federal guidelines that treat any transactions involving marijuana as money laundering.

It has also created some uncertainty for marijuana ETFs since ETFs require independent third party custodians, usually banks, to hold securities for them.