The Toronto Stock Exchange is offering a new way to bet on marijuana. It launched the first cannabis-focused exchange-traded fund at the beginning of April.
An exchange-traded fund or ETF is type of fund which owns the underlying assets (shares of stock, bonds, oil futures, gold bars, marijuana) and divides ownership of those assets into shares.
For investors who believe that the marijuana market will be a booming sector, the Horizons Medical Marijuana Life Sciences ETF (HMMJ), which is now selling on the Toronto Stock Exchange offers a way to invest without taking on individual company risk. However, the ETF only holds a total of 14 stocks, and while billed as a global fund, 10 holdings are Canadian-based. The medical marijuana industry is more developed in Canada than in other nations, and cannabis could soon become legal for all Canadian adults, according to an article by CNBC.
HMMJ is the first ETF in the world that offers direct exposure to North American-listed stocks that are involved with medical marijuana bioengineering and production, according to MarketWatch.
Economic experts warn that holding an ETF in a young industry could see ups and downs as the sector works through growing pains.
"The narrower the investment theme, the more can go wrong if demand for the underlying securities doesn't materialize," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA Research.