ETF of the Moment: A Budding Comeback for Cannabis | Trillions
From Trillions
Andre Yap•Bloomberg Intelligence ETF Research Associate
Executive Summary
Department of Justice's move to reclassify marijuana from Schedule I to Schedule III is a major regulatory catalyst, driving significant investor interest in the cannabis sector.
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Cannabis ETF (MSOS) has surged over 40% in the past month on this news, with a corresponding 56% increase in trading volume, making it the 'ETF of the moment'.
The primary benefit of reclassification is a change in tax status, allowing companies to deduct ordinary business expenses.
However, this benefit is limited to the medical portion of their business (approx.
25% of the market), not the larger recreational segment.
Despite the recent rally, MSOS remains down approximately 88% from its all-time high, highlighting the sector's extreme volatility and long road to recovery, positioning it as a high-risk, high-reward 'hot sauce' investment.
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Concerns Raised
The ETF is still down approximately 88% from its peak, highlighting extreme historical volatility and risk.
Tax benefits from reclassification are limited to the medical side of the business, not the larger recreational market.
The ETF's use of swaps (derivatives) to gain exposure adds a layer of complexity and potential counterparty risk.
The path to full federal legalization for recreational use remains uncertain and is a ceiling on the industry's growth.
Opportunities Identified
The reclassification of cannabis to Schedule III is a major positive regulatory shift that improves company fundamentals.
The ability to deduct business expenses will significantly improve cash flow and profitability for the medical portion of cannabis companies.
As the dominant ETF with over $1B in AUM, MSOS is the most liquid vehicle to invest in a U.S. cannabis market recovery.
The sector has been severely beaten down, offering significant upside potential from a low base if positive momentum continues.