There's a new U.S. cannabis exchange-traded fund on the market. Innovation Shares' pure play cannabis ETF, the Cannabis ETF ($TCHX), kicked off trading on the New York Stock Exchange Arca on Tuesday.
"We are a passively managed fund, meaning we track an index, and the ETF does not hold any alcohol or tobacco stocks, thereby making it more of a pure play exposure for investors who want to get involved in cannabis," Innovation Shares' Managing Director Matt Markiewicz told Cheddar.
The new ETF tracks the Innovation Labs Cannabis Index, which consists of 35 of the top stocks in the cannabis space, including Canopy Growth ($CGC), Aurora Cannabis ($ACB), Cronos Group ($CRON), Tilray ($TLRY), GW Pharmaceuticals ($GWPH), and Greenlane ($GNLN), among others. The passively managed fund re-balances monthly, rather than quarterly or semi-annually, and has a management fee of 0.7 percent. That's lower than the fee for comparable cannabis ETFs, but falls above an average ETF expense ratio of 0.44 percent, according to the Wall Street Journal.
THCX is not the first cannabis-focused ETF to trade in the U.S. ETF Managers Group's Alternative Harvest ETF ($HMMJ), which also trades on the NYSE Arca, has $1.1 billion in net assets under management. The AdvisorShares Pure Cannabis ETF ($YOLO) is newer, having kicked off trading on the NYSE Arca in April of this year, but has grown rapidly. It currently has close to $60 million in assets under management.
But Markiewicz said THCX, is unique because it doesn't include alcohol or tobacco stocks. And despite the inherent risk of investing in a new industry ー and one that is still federally illegal in the United States ー Markiewicz said it's still smarter for an investor to invest in a basket of stocks, rather than a single company.
"The single stocks have proven to be quite volatile over at least the past several months, and from our perspective giving investors the option to maybe diversify away some of the risk if they are not necessarily very educated or have done a lot of research on the cannabis industry, you diversify that risk by investing in a broader basket of stocks that have exposure to the industry," he added.
THCX isn't Innovation Shares' first foray into a cutting edge industry. In January 2018, the company launched the NextGen Protocol ETF ($KOIN), which gave investors exposure to blockchain stocks. It currently has more than $10 million in net assets under management, and has benefited from a recent rally in bitcoin prices. And once THCX gets up and running, Markiewicz hinted Innovation Shares may have other thematic ETFs coming down the line.
"There are a lot of places where investors are having a hard time accessing the market, especially from a technology standpoint," Markiewicz said. "Themes are more looking to capture longer term investment trends based on demographics or changes in what's going on in the world. We are hoping to come up with some exciting themes for investors in the years ahead."
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