Marijuana has been one of the worst and one of the best investments in 2020.
In 2020 alone, pot stocks as a whole fell more than 50% from the January to March time frame. Since then, the group has risen more than 75%, bringing its year-to-date total return to around -5%. A relatively modest performance given the high degree of volatility.
Marijuana stocks, however, could have a bright future in 2021.
Legalization and decriminalization bills have passed in several states and the U.S. Congress may take up the cause of making marijuana legal at the federal level sometime in the coming year. If the COVID vaccine does what we hope it will and the global economic recovery stays on track, 2021 could be a big year for marijuana stocks.
Volatility will likely remain high as a lot of these stocks are still trading on potential instead of results, but there's little doubt about the long-term growth potential of this sector.
If you want to invest in cannabis, several ETFs have emerged with different target sub-markets and investment styles.
Here's my list of top marijuana ETFs for 2021.
ETFMG Alternative Harvest ETF (MJ)
Easily the largest ETF in this group, MJ casts a wide net investing in everything from cannabis growers to makers of cannabinoid-infused drugs to fertilizer and pesticide producers.
While MJ still enjoys the first mover advantage, the argument could be made that it's biggest drawback is that it casts too wide a net. Yes, fertilizers are used in cannabis cultivation, but is that really providing marijuana exposure? On the plus side, securities lending practices have pushed the fund's yield north of 7%, so it could appeal to dividend income seekers as well.
AdvisorShares Pure Cannabis ETF (YOLO)
YOLO is an actively-managed fund that takes a more targeted approach to direct cannabis exposure looking at companies in the U.S. and Canada.
I'd argue that choosing an actively-managed fund might be the better way to go when it comes to investing in marijuana. With the industry landscape changing so rapidly, it's best to stick with a portfolio that can change with it versus a fund that may only be rebalanced every 3 to 6 months.
AdvisorShares Pure U.S. Cannabis ETF (MSOS)
MSOS follows a similar strategy to its sister fund, YOLO, but concentrates specifically on U.S. domiciled companies.
YOLO is roughly 50% United States, 33% Canada and the remainder going to the United Kingdom and cash. MSOS is 100% United States. Canada has had a smoother path to cannabis legalization, so there may be some strategic advantage there, but MSOS offers an option for those wishing to target just a single market.
The Cannabis ETF (THCX)
THCX follows an index of cannabis companies that are engaged in the cultivation, production or distribution of marijuana for medical or recreational purposes.
THCX also casts a wide net (a 7% allocation to Scotts Miracle-Gro and some exposure to financials) so it's more MJ than YOLO, but the index rebalances monthly, so there is some relatively quick response to industry changes.
Global X Cannabis ETF (POTX)
POTX also takes a more unconstrained approach to stock allocation and is one of the cheaper options in the marijuana ETF space.
POTX is fairly concentrated holding fewer than 20 names in the portfolio, but remains heavily invested on the pharmaceutical side of the industry. Its expense ratio of 0.50% comes in about 20 to 25 basis points cheaper than the bigger ETFs listed earlier.
Cambria Cannabis ETF (TOKE)
TOKE will target anywhere between 20 and 50 of the top companies in the space based on Cambria's determination as to their exposure in the industry.
Cambria is Meb Faber's company for those familiar with his name. TOKE is an interesting entry in this space since it combines an actively-managed portfolio with the lowest expense ratio, currently at 0.42%. With a modest $18 million in assets, it's a bit under the radar.
Amplify Seymour Cannabis ETF (CNBS)
CNBS is also actively-managed and will invest in companies engaged in pharmaceuticals, cultivation, hemp, agriculture and consumption devices.
CNBS is another ETF run by a popular name in the financial media - in this case, CNBC contributor Tim Seymour. This is another concentrated ETF with fewer than two dozen holdings overall and more than 50% of assets dedicated to the top 5 positions.