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Cannabis ETFs Finally Go Domestic With MSOS Launch

It may not be the American Dream per se, but the universe of cannabis exchange-traded funds got much more American Wednesday with the debut of the AdvisorShares Pure US Cannabis ETF (NYSE: MSOS).

· 09/03/2020 10:00

It may not be the American Dream per se, but the universe of cannabis exchange-traded funds got much more American Wednesday with the debut of the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS).

What Happened: It was revealed late last month that AdvisorShares, one of the largest issuers of actively managed ETF, was planning an imminent launch of MSOS, in effect bringing more stars and stripes to the cannabis ETF landscape.

With the debut of MSOS, there are now 10 weed ETFs trading in New York, including leveraged fund, but MSOS is the first with a distinctly American feel.

Why It's Important: The new AdvisorShares ETF focuses on multi-state operators, or MSOs. Those are U.S.-based marijuana producers that are thriving while their Canadian counterparts, which dominate the legacy funds in this category, struggle with supply issues and slack sales.

MSOs “are U.S. based companies directly involved in the legal production and distribution of cannabis in U.S. states where approved,” according to AdvisorShares. “As more states legalize cannabis for medical or recreational-use and as this fragmented industry evolves, M.S.O.s are believed to be a growth opportunity based on their ability to develop operation, distribution, marketing, and research and development efficiencies in multiple state.”

The Pure US Cannabis ETF Started Trading: Here Are Its Holdings

MSOS features exposure to 11 cannabis-related sub-industry groups with senior and junior MSOs combining for 56.40% of the new ETF's weight. Other exposures include retailers, special purpose acquisition companies (SPACs) and real estate investment trusts.

Confirming that there is some speculative element with MSOs, just 2.6% of the new ETF's holdings are classified as large caps while the rest are mid-, micro or small-cap names.

What's Next: Due to its listing on the New York Stock Exchange, MSOS must adhere to the venue's listing requirements. That means the fund must hold stocks that are listed on the major U.S. or Canadian exchanges.

That doesn't apply to most MSOs, a problem the AdvisorShares is able to skirt by providing synthetic exposure to U.S. multi-state operators via derivatives.

For many investors, the issue isn't how MSOS functions. They may simply view the ETF being available as a plus. Data confirm there's something to that line of thinking.

According to AdvisorShares, the U.S. accounts for 84% of global marijuana sales and the market is forecast to grow at 18% annually through 2025.

MSOS charges 0.74% per year, or $74 on a $10,000 investment.