A new actively-managed cannabis ETF that seeks to provide exposure to the fast-developing global cannabis industry debuted today: the Amplify Seymour Cannabis ETF (NYSE Arca: CNBS).
CNBS will utilize a top down and bottom up analysis performed by early-stage cannabis investor Tim Seymour, CIO of Seymour Asset Management and CNBC Fast Money co-host, who will serve as the fund’s portfolio manager.
The fund’s analysis will be used to determine the holdings and weightings of the diverse portfolio of cannabis stocks held by CNBS. It will not invest in any company that is deemed to be violating any federal or state laws.
Amplify ETFs CEO Christian Magoon said the CNBS portfolio has a purity mandate which requires 80% of the ETF’s assets to be invested in companies with 50% or more of their revenue from the hemp and cannabis ecosystem.
“CNBS is an actively managed ETF designed to respond to the daily opportunities and risks that present themselves within the quickly evolving cannabis space,” Magoon said. “Two of the three current Cannabis ETFs are index-based and thus are only able to buy and sell cannabis stocks during their once a month or once a quarter rebalance. We feel an approach that has artificially created timing constraints, isn’t able to match the daily risks and opportunities that occur in the cannabis market segment. An investor wouldn’t be current on the cannabis space by reading the newspaper once a month so why would they want their ETF to only be able to make buying or selling decisions once a month?”
Besides being actively managed, Magoon said its portfolio manager Tim Seymour will be a key differentiator for the CNBS ETF.
“(Tim) has been an early stage cannabis investor in public and private companies,” Magoon said. “He is a recognized thought leader in the cannabis industry as demonstrated by his cannabis conference panel moderation and keynote addresses. Tim also regularly interacts and interviews leading cannabis company CEOs and regulators as a host of CNBC’s daily show Fast Money.”
Earn 1 CE Credit! Webcast – Investing in Cannabis: What Advisors Need to Know
Magoon added that Seymour has been a portfolio manager for more than 20 years with a long-time focus on emerging assets classes including emerging markets, commodities and cannabis.
“The overall combination of portfolio management skill, cannabis industry interaction and cannabis investing experience is the foundational CNBS value proposition it seeks to capitalize on for investors in the ETF,” he said. “We believe there are no other portfolio managers in this product set that even come close to Tim’s experience, access and reputation in the cannabis market segment.”
Magoon said legal global cannabis industry spending is estimated to grow by 30% per year through 2022.
“2018 spending was $12.3 billion and it is expected to grow to $31.7 by 2022 according to Arcview market research and BDS Analytics,” Magoon said.
Asked what challenges US investors face who want exposure to cannabis stocks, Magoon pointed to stock selection and legal risks.
“The cannabis stock market segment – like any developing market segment – has a variety of companies with various levels of balance sheet strength, management team depth, strategic relationships, brand power and growth rates,” he said. “These factors are all important bottom up fundamentals that can influence future valuations. In addition top down macro factors like federal and state legislation, FDA rules and legalization trends impact companies in different ways. In short, ongoing security analysis and selection is likely to produce superior risk adjusted returns in the cannabis stock segment. We believe investors should avoid less rigorous approaches to investing in cannabis stocks as there are likely to be big winners and losers in the years to come."
In addition, although there are many publicly traded companies in the market segment, some may be operating their business in a way that violates federal or state laws, Magoon said.
“This could lead investors to be exposed to company risks that could include regulatory, law enforcement or monetary penalties,” he said. “Careful analysis of where a company is operating and what activities are part of their operations is imperative to avoid exposure to negative future outcomes for stocks violating laws.”
CNBS is an extension of Amplify’s broad based thematic ETF lineup which includes the first and largest online retail ETF (IBUY ), the first and largest blockchain focused ETF (BLOK), the first Peer to Peer Lending ETF (LEND), the first Advanced Battery Metals ETF (BATT) and the first international online retail ETF (XBUY).
For more thematic ETF plays, visit our Thematic Investing Channel.