Why are some cannabis ETFs more popular than others?

A performance of over 40% – that is probably what many investors dream of. Those who achieve a return in this range, quickly increase their assets. No wonder ETFs that entice with such a return are very popular. Just over a month was enough in 2021 for the Rize Medical Cannabis and Life Sciences UCITS ETF to increase its value.

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The Rize Medical Cannabis and Life Sciences UCITS ETF

ETF provider Rize focuses on future trends in its investment products. The Rize Medical Cannabis and Life Sciences UCITS ETF has been around for just over a year. Currently, there are $30 million (€25 million) in the cannabis ETF as of February. This physically tracks the underlying index and accumulates the returns generated. The expense ratio of 0.65% is slightly higher than the average cost for an exchange-traded fund.

The investment objective

RizeETF’s objective with the Rize Medical Cannabis and Life Sciences UCITS ETF is to provide investors with diversified investment in the cannabis industry. The Rize Medical Cannabis and Life Sciences UCITS ETF is the first European ETF to include companies that could sustainably benefit from the growing adoption of cannabis-based wellness products and medicines. In doing so, the index excludes companies whose products have too high THC content or ignore regulatory requirements.

Geographical weighting

The Rize Medical Cannabis and Life Sciences UCITS ETF’s geographic allocation focuses on the United States of America. Nearly 80% of the companies in the cannabis ETF are based in the United States. Another 15% are from the United Kingdom. Less than 2% each come from Switzerland, Ireland, Australia and Canada. The geographic diversification is thus characterized by a strong US dominance.

The largest positions

There are just over 20 positions in the Rize Medical Cannabis and Life Sciences UCITS ETF. However, some companies dominate the cannabis ETF. The largest three positions account for well over half.

The largest position is Growgeneration Corp. with almost 29% ETF exposure. Growgeneration Corp. is an agricultural company that offers hydroponic systems and products.

Following with 13-15% ETF shares are Gw Pharmaceuticals Plc. and The Scotts Miracle-Gro Company in 2nd and 3rd place, respectively. Gw Pharmaceuticals Plc. is a British pharmaceutical company focused on MS drug development. The company is known for the first approval of a cannabis derivative. In contrast, The Scotts Miracle-Gro Company is a U.S. manufacturer of gardening and plant care products.

Performance

The Rize Medical Cannabis and Life Sciences UCITS ETF has been around for just under a year. Performance since inception has been respectable, although this is limited due to the short history. In 2020, the return was 44.45%. The Rize Medical Cannabis and Life Sciences UCITS ETF looks at almost the same price performance after one month in 2021.

Risks of the ETF

Despite great performance in 2021, there are also some risks with the Rize Medical Cannabis and Life Sciences UCITS ETF. The cannabis sector is cyclical. At the same time, new laws may ensure that companies’ business activities are affected.

From today’s perspective, it is impossible to estimate with certainty how cannabis treatment will develop in the future. It is likely that such medicines will disappoint when used on a mass scale. In addition, medical innovations could make cannabis medications unnecessary. The strong performance is thus offset by certain risks that investors should not neglect.

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(Featured image by PublicDomainPictures via Pixabay)

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