What You Need to Know About Marijuana-Based Mutual Funds

What You Need to Know About Marijuana-Based Mutual Funds

There’s a whole lot of buzz around cannabis stocks. You’ve probably heard the stories… Some investors have really benefited from investing in marijuana.

Over the last few years, marijuana legislation has evolved. Dispensaries and cannabis companies continue popping up worldwide. It’s not expected to slow down either. By 2020, the marijuana industry is expected to be valued at $32 billion US dollars – that’s over 27% growth a year!

This is the kind of growth that investors like to see. For a lot of people, investing is part of planning for the future. For others, day trading can be a career or side-hustle. If you’re not into managing your own portfolio, mutual funds are a great option. Think of mutual funds as a collection of stocks and bonds designed to limit your risk and make you money. Mutual fund owners won’t need to invest any time in the stock market, this is why these financial products are so attractive. Anyone can invest in mutual funds, even if you don’t know much about personal finance.

To serve the growing number of cannabis consumers and companies, marijuana-based mutual funds were born. There is definitely demand for these products and plenty of gains to be made… or lost.

Investing in marijuana mutual funds doesn’t need to be complicated. This guide is designed to give you an overview of what you need to know and teach you about some of the largest cannabis funds. 

Before we dive in, let’s cover some basic precautions anyone investing in marijuana should take.

Taking An Informed Approach to Marijuana Mutual Funds 

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When it comes to investing, nothing is guaranteed. Even if you do all the research in the world, stocks will always have an element of risk. Even if all signs are pointing to a stable market, there’s no such thing as being too informed.

Yes, the cannabis industry is booming. But that doesn’t necessarily mean that every marijuana company with stock options is profitable or valuable. The Series Two Fund is a perfect example. This mutual fund became available at the beginning of the cannabis market boom. You’d think that this fund would now be insanely profitable, but that’s not the case. The entire fund is worth less than $900,000. The Series Two Fund’s expenses are higher than that!

There is also an element of risk when a mutual fund is based in a place where weed is illegal. This is the case in the United States. Marijuana is legal in some states but the federal government has not adopted these laws. Technically, the Department of Justice could still interfere with mutual funds and the companies involved. Federal laws trump state-level laws. If the government decided to go after cannabis companies – your portfolio could be in serious trouble.

Anyone considering investing in marijuana stocks should also consider the current market state. There is a reason some financial experts criticize these mutual funds. Some companies’ stock prices reflect their true value, but others do not. This is because a good amount of weed stocks are inflated. Everyone got excited when weed started becoming legalized, so stock prices shot up with major influxes of investment. In many cases, human factors rather than company success have resulted in high stock prices.

All will be good if the market continues to grow. But, if it doesn’t, the prices of weed stocks and therefore the value of marijuana mutual funds, will fall.

Other countries have different complications when it comes to weed stocks. In Canada, marijuana is legal and the industry’s stocks have skyrocketed. Prices are fairly volatile because it seems that supply may not be able to keep up with the demand. It’s a classic tale. Cannabis companies can only make money if they have enough product to sell to keep customers happy. Supply issues might impact Canadian stocks too.

Over-the-Counter (OTC) stocks have a similar story. Even though these companies are legal and listed on major stock exchanges, they aren’t risk-free. Don’t think you’re off the hook if you find an awesome OTC company. Their financials may look friendly, but often extra research is required.

Major Players in Mutual Funds 

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If you’ve made it this far, chances are you’re still interested in investing in marijuana mutual funds. To save you some time, we’ll go over the industry’s most popular funds.

1. Horizon Marijuana Life Sciences (HMMJ) Fund

HMMJ is the largest cannabis mutual fund on the market. But this isn’t the most stable collection of stocks. Over the last 5 years, the HMMJ fund has risen and fallen. 

Some of this volatility has to do with the Canadian cannabis industry and legislation. Some investors have contributed to large sell-offs in the past that have driven the fund’s price down.

If you’re interested in this fund, you’ll be happy to hear it’s fairly diversified. Well, at least in terms of weed stocks. The HMMJ fund has over 50 different stocks and is worth over a billion dollars.

2. ETFMG Alternative Harvest ETF

This fund is also known by its ticker MJ. It has had some pretty good success. At one point, the fund used to cost over $40.00. Now, you can buy into the fund for just over $16. Buy low and sell high? We’ll let you decide.

The good news about the ETfMG fund is that it has some impressive supporters. Some major financial players have bought in. The Royal Bank of Canada and FCStone are a few of the impressive companies backing the fund.

3. Evolve Marijuana UNT ETF

Think of the Evolve (SEED) as the stable older brother of the marijuana mutual fund community. Despite the current state of the market, SEED has remained fairly consistent. It has dipped in late 2019, but not as much as some of the other funds.

This fund is popular amongst Canadian investors. SEED is probably best as a long-term investment because of its stability. You won’t be able to capitalize on volatility, so think of it as a set-and-forget-it type of fund. 

4. Horizon Juniors Marijuana Growers Index ETF

Horizon Junior was introduced in early 2018. Actually, this fund just turned two! Unfortunately, Horizon Junior (HMMJR.TO) hasn’t lived up to expectations. It’s not a high priced fund – which definitely has perks for investors on a budget.

The cool part about this fund is its inclusion of small cannabis companies. This likely has something to do with its low price. If you’re the type of person who likes to support small businesses – this fund is for you. Just be cautious, because Horizon Junior’s track record isn’t yet stellar.

5. American Growth Funds Series Two Class 

Like Horizon Junior, American Growth (AMREX) is a less expensive marijuana mutual fund. It isn’t the largest fund out there but some investors think it has potential!

Over the last few years, AMREX’s price has fluctuated between $3 and just under $5. But in 2016, the fund was valued at over $11 a share. So, it’s fairly affordable right now and has potential. While it has experienced some volatility, overall, the price changes haven’t been dramatic lately. 

What’s The Verdict?

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We’ve covered the basics of weed stocks, marijuana mutual funds, the risks and some of the most popular options. Ultimately, it’s up to you to do the research and make up your own mind. 

With that being said, buzz doesn’t come out of nowhere. A lot of people are anticipating the marijuana industry to soar. If it were guaranteed, we would all be investing right now. But, with any stock or fund, there are no guarantees.

Some investors have used this hype to make some quick sell-offs. This happened in Canada on a large scale. In the months leading up to marijuana’s legalization, stock prices skyrocketed. As soon as the legislation came into effect however, a lot of investors sold off their shares and the prices fell. This is why this area of finance has received so much criticism – kind of like Bitcoin. It’s all a little uncertain.

Remember, all investments go up and down. The key is to invest with as much information and caution if you’re looking to avoid any losses.

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