Say hello to THCX, Wall Street’s latest cannabis ETF

In the continuation of marijuana normalization, the latest cannabis news is a great example of the excitement and interest that Wall Street has in the growing cannabis industry. Innovation Shares has announced the launch of the latest cannabis to hit the market, NYSE: THCX.

This fund is centered around legal companies that are working with CBD, hemp, and marijuana (legal medical and recreational). It will be another passive fund similar to most others in the group, but it will only invest in cannabis companies, making it a pure-play fund. Its home will be on the NYSE, specifically the Arca platform. Fund managers also reveal that the fund will be rebalanced monthly, rather than the ETF standard of quarterly rebalancing.

“Rebalancing on a monthly basis not only allows the fund to take advantage of a constantly evolving cannabis capital markets environment but should help smooth out some of the longer term volatility that is often associated with the burgeoning industry. This is a chance for serious investors who recognize the potential of a generational investment opportunity but have wavered on buying specific stocks,” added Innovation Shares spokesperson, Matt Markiewicz via email.

Monthly rebalancing, rather than a quarterly timeframe, allows the ETF to enjoy the upside potential of the industry. This passively managed fund does have a few features that make it stand out, and rebalancing on a monthly basis is an important one. Another is the no-vice aspect of the investments, and the lower than industry fees and costs.

THCX is a no-vice ETF

According to the team at Innovation Shares, due to the pure-play status of the ETF, it will also be the first NYSE listed ETF that includes cannabis and is free of alcohol and tobacco stocks. This lack of exposure elevates the ETF in what is becoming a very crowded field. There are a lot of cannabis users who believe that it is important to consider the social impact of their investments, and having a no-vice ETF option is likely to be appealing to many.

There are a lot of people who have turned to cannabis use as a way to decrease their dependence on pharmaceutical drugs. There is another group that now avoids alcohol and uses cannabis as a recreational social lubricant. Cannabis does not take a toll on society in the way that alcohol and tobacco use can. It makes sense that the creators of THCX elected to make this fund one that sticks with companies that are working to improve life in their societies rather than cause harm.

Growth on a global scale

The global cannabis market is projected to grow to an estimated value of $630B in the next 20 years. The THCX EFT includes 35 stocks that reflect the overall composition of the cannabis industry. This is important in marijuana news because it shows the depth and breadth of the industry. It is not just the United States and Canada that are enjoying a robust cannabis industry. India, Ireland, and other nations around the globe are excited about the possibilities of both medical and recreational cannabis use. Tax revenue alone is enough to make many governments sit up and take notice.

As the use of hemp and CBD expands, there will be many additional revenue streams that are not associated with the medical or recreational use of cannabis. Already, hemp is becoming a favorite of people looking for an effective skin moisturizer that doesn’t contain harmful chemicals. As these types of uses increase, the cannabis industry will grow exponentially. Companies that are getting in on the ground floor are providing a road map to those who will follow. This includes businesses that are focused solely on the pet or beauty industries.

Low fund management costs make this ETF more attractive than others

Because THCX is a passive fund, the fees are lower than those that are actively managed. The 70bps management fee reflects the lowest fee of all of today’s actively listed cannabis ETFs. This stat may be misleading, however, because there are only two other ETF funds that are publicly listed. When a fund or ETF is non-listed it can be difficult to verify their management fees. ETFMG Alternative Harvest ETF (NYSE: MJ), one of the other two listed ETFS has a fee level of 75bps. And the third ETF, The AdvisorShares Pure Cannabis ETF (NYSE: YOLO), is currently at 74bps. It should also be noted that all three of the publicly traded cannabis ETFs clearly took some time to choose their ticker symbols!

It is not clear why the cannabis funds are so much higher than other typical passive ETF, whose average fee is around 44bps. (Basis points (bps) are equivalent to percentage points where 44bps would equal a 0.44% fee.) Needless to say, paying $4.44 on a $1,000 investment does seem like a good deal. Management fees must always be considered when selecting an investment fund, and having the lowest fee of its peer group will likely help THCX. The fee may only be slightly lower, but when many factors are considered and funds are considered to be otherwise equal, the fee may be the deciding factor.

All the big names are included in the THCX ETF

If you have explored the financial side of the industry you will probably be familiar with the companies included in the THCX ETF: GW Pharmaceuticals, Charlotte’s Web Holdings, Tilray, Canopy Growth, Greenlane Holdings, Cronos Group, Hexo Corporation, and Aurora, just to name a few of the 35 companies. As more companies gain traction and start to make the move to public listing, it will be interesting to see how large the industry really is. At the moment, it does seem like the sky’s the limit! Growers don’t seem to be slowing down, and with THC and CBD being added to more products every day, manufacturers’ need for product will continue to grow.

Explosive growth opportunities

All eyes are on the regulatory environment, especially in the United States, and it does seem like more states are moving toward legalization. Industry watchers state that until Federal legalization there is still some risk in investing in these stocks and ETFs. The inclusion of hemp crops in the latest Farm Bill is a good indication of how the Federal Government is viewing the hemp and CBD aspects of the industry. There does not appear to be a lot of positive movement toward decriminalization and legalization of marijuana on the Federal level.

One interesting facet of the industry, and a likely source for substantial growth, is the increase in personal care products. More people are seeking out creams and lotions that contain both hemp and CBD oils. Another area of growth is the use of CBD in pet products. As the cannabis industry continues to grow, we can expect more and more interest from the financial markets. It will be interesting to watch how the investment activity affects the overall industry and if it creates any changes in how the MMJ business adapts and grows. The cannabis industry continues to grow in many mainstream ways, and it is fascinating to watch how the global markets are reacting to these public companies and ETFs.