At the start of this year, there was just one marijuana exchange traded fund (ETF) listed in the U.S. By April, that number had doubled to two and now, with the end of July almost here, the number of marijuana ETFs trading in the U.S. is up to four.
So July has been a brisk month in terms of new cannabis ETFs coming to market, as two have accomplished that feat. The newest member of that group is the Amplify Seymour Cannabis ETF (NYSEARCA:CNBS), which debuted on Tuesday, July 23.
Like the AdvisorShares Pure Cannabis ETF (NYSEARCA:YOLO), which debuted in April, the Amplify Seymour Cannabis ETF is an actively managed fund. CNBS is run by noted cannabis investor and CNBC personality Tim Seymour.
“The global legal cannabis industry is still very much in its infancy and presents an attractive growth opportunity for investors looking to capitalize on this emerging frontier,” Seymour said in a statement. “Amplify has a track record of offering investors access to disruptive areas of the market via the ETF structure, and the cannabis industry certainly fits this mold.”
Setting Itself Apart
As more ETFs reflect the same sector, it become more incumbent on the segment’s newer funds to differentiate themselves from their more established rivals. This is particularly true of thematic ETFs because investors, rightly or wrongly, may believe certain themes, including cannabis, can only support so many ETFs.
For its part, CNBS has some ways of setting itself apart from its more established cannabis ETF rivals. CNBS is somewhat of a cannabis pure play, as 80% of the marijuana stocks within CNBS get “ 50% or more of their revenue from the cannabis and hemp ecosystem,” according to Amplify.
The new marijuana ETF also aims for some diversity at the industry level, which can be somewhat difficult in the still-nascent marijuana business. Six industry groups are represented in CNBS, with 61% of its weight allocated to cannabis cultivators.
CNBS would appear to be a mid- to smaller large-cap marijuana ETF, but in reality, it also incorporates smaller marijuana stocks.That is one way CNBS sets itself apart from competing cannabis ETFs; active management can be advantageous when it comes to selecting smaller stocks, particularly in the marijuana space.
Smaller marijuana stocks can rise dramatically. So it’s interesting to note that more than two-thirds of CNBS’ lineup is comprised of small- and micro-cap stocks.
The Bottom Line: Fierce Competition
Undoubtedly, there is fierce competition in the marijuana ETF space, and that competition will only get hotter as more issuers bring marijuana ETFs to market. That is definitely going to happen.
As I noted here, fees are battlegrounds for new ETFs to make inroads against their rivals. CNBS charges 0.75% per year, or $75 on a $10,000 investment. That is the same as the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) and 0.1 percentage point more than the aforementioned YOLO, the other active marijuana ETF.
In terms of competing with YOLO, CNBS has the potential to make something happen because YOLO has dropped 19% since coming to market.
For now, the Cannabis ETF (NYSEARCA:THCX) is the cheapest cannabis ETF on the market with an annual expense ratio of 0.70%.
Let’s check back in a few months to see how CNBS is stacking up against its rivals mentioned here, especially YOLO, before rendering a decision on this rookie cannabis ETF.
Todd Shriber does not own any of the aforementioned securities.