Benefits and risks of investing in cannabis ETFs
The benefits of investing in cannabis ETFs include:
- The potential for significant long-term gains
- Diversification across multiple marijuana stocks
- Exposure to some U.S. multi-state cannabis operators that can’t list their shares on U.S. stock exchanges
However, there are also downsides associated with investing in marijuana ETFs, such as:
- High risk and volatility
- Relatively high expense ratios
- Marijuana ETFs could own some marijuana stocks that investors would prefer to avoid
Methodology: How these ETFs were chosen
The most important criterion for selecting these ETFs was that they had to invest heavily in stocks operating in the cannabis sector. There aren’t many funds that qualify.
It was also important that the cannabis ETFs be managed by a reputable company. All five selected ETFs passed this hurdle.
Note, though, that there was no threshold for assets under management (AUM). Some of the ETFs on the list have relatively low AUM levels.
Should you invest in cannabis ETFs?
Investing in cannabis ETFs isn’t for everyone. Although these ETFs offer several advantages over buying individual cannabis stocks, they can still be highly volatile. Risk-averse investors will be better off looking for other assets to buy.
On the other hand, aggressive investors could find these funds attractive alternatives. Patience may be needed, though. Cannabis ETFs could underperform over the short term.