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New cannabis-themed ETF launches

A new cannabis ETF has launched this week on the Cboe BZX Exchange, one of the largest equities market operators in the US.

According to BDSA, the global cannabis market is expected to grow to $61 billion by 2026, more than double $29 billion in sales for 2021. The majority of this growth is expected to come from the US and Canadian markets as consumer access improves amongst legalised states.

New Jersey is the most recent state to legalise recreational cannabis with its first salestaking place today. It joins 37 other states that have legalised cannabis for medical use and 18 states that have legalised recreational cannabis.

The Roundhill Cannabis ETF – referred to simply as WEED ETF – seeks to provide investors with exposure to the burgeoning cannabis sector, including US multi-state operators (MSOs), cannabis producers, distributers and technology companies. The fund includes some of the industry’s biggest players, including Curaleaf Holdings (12.1 percent weight), Trulieve Cannabis (8.5 percent weight) and Green Thumb Industries (10.1 percent weight), ancillary cannabis businesses, like WM Technology (3 percent weight), and Canadian cannabis companies, like Tilray (4.7 percent weight).

The pooled investment fund was launched by Roundhill Investments, a US-based investment adviser focused on developing thematic exchange-traded funds. The firm’s product lineup currently accounts for more than $1 billion in assets under management.

“While publicly-listed cannabis companies have recently underperformed, we believe that the cannabis market may be entering an inflection point in terms of both profitability and regulatory momentum,” said Roundhill CEO Will Hershey.

“We wanted to provide investors with a comprehensive vehicle to invest in the space, and at a net expense ratio of only 0.59%, we believe that WEED has the potential to become the benchmark for the entire sector. WEED allows for U.S. retail and institutional investors to gain exposure to U.S. operators, potentially in advance of positive legislation.”

As legalisation continues across the US and the world, cannabis ETFs have been growing in popularity over the past few years. According to Bloomberg, the market for cannabis and psychedelic funds was valued at around $2.3 billion in 2021, compared to $686 million in 2020.

But as investors continue to bank on the cannabis sector, publically-listed cannabis companies have failed to impress in recent months with many struggling to perform well on the stock market. Kevin Bush, CFO of a major lender for the cannabis sector, SweetLeaf Madison Capital told Cannabis Wealth that this could be partly due to investors’ ‘obsession’ with federal legalisation and an oversimplification of the US cannabis sector.

“The house just passed the MORE Act which would legalise cannabis at a federal level, but that really didn’t have any expectation to pass the Senate which would be required,” Bush explained.

“That’s one reason why you’ve seen the public company stock prices so depressed. Investors tend to be manic and they tend to focus obsessively on federal legalisation. This tends to drive the stock prices as opposed to what [companies] actually might be worth from a cash flow perspective.

“It will eventually change it’s but it’s going to be a slow move.”

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