Investing in the growing U.S. cannabis market just got easier as ETF Manager Group (ETMG), the issuer behind the wildly successful ETFMG Alternative Harvest ETF (NYSE: MJ), launched its new ETFMG US Alternative Harvest ETF (NYSE: MJUS).
MJ ETF vs. MJUS ETF
While MJ is focused on global companies, MJUS gives investors a way to back cannabis companies operating in the U.S., including multi-state operators (MSOs) directly involved in the cultivation, production, marketing and distribution of cannabis or cannabis-related products.
MJ, which debuted in December 2017, has become a proxy for U.S. investors looking to deploy capital into global cannabis companies. With nearly $1.7 billion in assets under management, this is the largest cannabis ETF in the world.
However, Jason Wilson, ETFMG cannabis and banking expert, notes that given that the U.S. cannabis market is the largest global market (legal cannabis sales in the U.S. exceeded $17.5 billion in 2020, up 46% year-over-year), there is an increased interest from investors in U.S. companies. This is the reason for MJUS’s creation.
“Even though the U.S. cannabis market has been growing at a very strong rate over the last several years, we are still in the relatively early innings and several factors should continue to drive growth: more states are legalizing cannabis, which will create additional markets; in existing legal markets, more canna-curious consumers are transitioning to and purchasing cannabis products; and with respect to existing users, sales data suggests that they have been purchasing an increasing amount of cannabis,” Wilson told Fintech Zoom.
Covering America’s Funding Gaps
Despite the rapid growth of the U.S. cannabis industry, the production and distribution of cannabis continue to be deemed illegal by the federal government. This creates significant headwinds for domestic operators.
From a financial perspective, U.S. cannabis companies have often lacked efficient access to capital, which not only increases their financing costs but can also result in increased shareholder dilution. Furthermore, U.S. cannabis companies are also subject to material operational and taxation inefficiencies relative to their global peers, which further affects their net income and ability to expand.
“From an investing perspective, U.S. cannabis companies are not able to list on U.S. and Canadian primary exchanges, and therefore must list on smaller foreign exchanges that are not widely accessible through U.S. brokerages, which limits liquidity and creates additional volatility for investors,” Wilson explained. “These issues have resulted in many U.S. companies trading at relatively lower multiples than their global peers which have the benefit of listing on U.S. and Canadian primary exchanges, have some level of institutional support, have more efficient access to capital, have lower effective tax rates, and are able to operate and expand into global platforms.”
However, we are likely to see meaningful reform during the current administration, he continued.
This would mean U.S. cannabis companies would be able to increase operational and financial efficiency, be able to list on primary exchanges, and start trading at higher multiples. Ultimately, this is what MJUS will seek to capitalize on.
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