- AdvisorShares is launching MSOS, a first-of-its-kind exchange-traded fund (ETF), focused on the US cannabis industry.
- MSOS will begin trading on the NYSE on September 2, AdvisorShares COO Dan Ahrens told Business Insider in an interview.
- The ETF has been a year in the making, as AdvisorShares has worked with BNY Mellon, its custodian bank, and NYSE Arca, where the ETF will be listed, to ensure MSOS is fully compliant.
- Visit Business Insider’s homepage for more stories.
Investors will soon have a new way to bet on the cannabis boom.
AdvisorShares, an investment firm, is launching a new US-focused cannabis exchange-traded fund (ETF) on the New York Stock Exchange’s Arca on September 2, AdvisorShares chief operating officer Dan Ahrens told Business Insider in an interview.
Put simply, ETFs are a type of investible security that tracks a basket of stocks. Investors are able to invest in them like any other stock.
The ETF, called MSOS, will be the first US-listed ETF focused on companies that sell and cultivate cannabis in the US directly, known as multi-state operators, Ahrens said. It will also include US-based CBD brands and other companies that support the industry including hydroponics technology, cannabis-focused REITs, and pharmaceutical companies, he said.
Cannabis and the majority of its derivative compounds are considered an illegal, Schedule I drug by the US federal government, though many states have legalized the drug for personal use and commercial sale since Colorado broke ground in 2012.
A Bank of New York Mellon spokesperson confirmed to Business Insider that it would serve as a custodian to MSOS and that it met all of its internal compliance requirements. A spokesperson for NYSE declined to comment.
“The US cannabis market is a much bigger and better opportunity than any other country,” Ahrens said. In the past, Canadian cannabis companies — like Tilray and Canopy Growth, for instance — have traded on “excitement and hype” rather than the underlying financials, Ahrens said.
NYSE’s listing requirements meant that MSOS could only include securities listed at NYSE, Nasdaq, Toronto Stock Exchange, or the TSX Venture Exchange. To get exposure to cannabis companies that fall outside those trading venues, MSOS will use derivatives handled by a third party.
“It is a way to have the fund not hold those stocks directly, but to get the total return of those securities,” he added.
Despite the ongoing conflict between state and federal law when it comes to cannabis, “the US is ten times the size of the Canadian market,” Ahrens said. On top of that, Ahrens said he expects to see a “separation” between Canadian cannabis stocks traded on hype, and US cannabis stocks with solid balance sheets and a path to profitability. Previously, Canadian and US cannabis stocks have traded in lock-step with each other, despite different fundamentals and a much larger addressable market in the US, Ahrens said.
MSOS isn’t AdvisorShares’ first cannabis product. It launched YOLO, an ETF focused more broadly on the entire cannabis industry, on NYSE Arca last year.
And there are other cannabis ETFs on the market as well, including Horizons Marijuana Life Sciences Index ETF (HMMJ), and ETFMG Alternative Harvest ETF (MJ), though neither offer investors much exposure to the US cannabis industry due to regulatory restrictions.
To Ahrens, part of what separates MSOS from the field, aside from the US focus, is the emphasis on active stock-picking.
“We’re picking the right stocks with exposure to the US market,” Ahrens said.
Communication was key to ensure MSOS was compliant
MSOS has been a year in the making, Ahrens said, with the initial prospectus filed to the Securities and Exchange Commission in August 2019.
Transparency was key, as AdvisorShares had many conversations with BNY Mellon, which the firm has had a relationship with for over a decade, and NYSE about how the ETF would run.
“We’re very upfront about the funds prospectus. What it can invest in. What it cannot invest in. Befitting the rule filing or listing standards of the exchange, and fitting into what is done properly, legally, and with everybody’s full approval,” he added.
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