Investor Alert

April 1, 2021, 10:47 p.m. EDT

Cannabis legalization in New York gets one pot ETF much higher than the rest

By Thornton McEnery

Cannabis ETFs are all benefiting from news that pot is now legal in New York State but while some are merely lighting a celebratory spliff, retail investors are helping one ETF break out the bong.

Pot stocks across the board were up Wednesday after New York Governor Andrew Cuomo signed legislation immediately legalizing cannabis for recreational use in the Empire State, but AdvisorShares Pure US Cannabis ETF (PSE:MSOS) stood out from the pack surging nearly 8%, well outpacing similar products like the ETFMG Alternative Harvest ETF (PSE:MJ) .

A key force in Wednesday’s action was retail interest in MSOS, reflected in the monster trading volume on the ETF , which was well over its daily average and significantly higher than the sector.

And there were more immediate indicators.

“You can’t trade the Canadian weed stonks,” one user posted on a Reddit r/wallstreetbets. “MSOS is the only play today.”

“[MSOS] looks like they’re directly invested in US plant-touching businesses,” explained Matt Karnes, founder of cannabis-centric firm Greenwaves Advisors. “They really have a synthetic return but that likely still attracts the retail crowd.” 

State legalizations are almost always a boon to the cannabis market, but the lack of federal legalization in the US has been a complicating factor for investors looking to monetize the spreading availability of THC. So-called “plant-touching” companies which either grow or distribute cannabis face massive regulatory hurdles when trying to list on a US exchange.

Some of the most heavily-traded pot stocks, like Aurora Cannabis (NAS:ACB) and Canopy Growth (NAS:CGC) now trade on the NYSE or Nasdaq ,but they were only allowed to do so after going public in their native Canada and then using an acquisition or a special application process that proves they are not operating in the US.

Because of the paucity of big, tradeable pot stocks operating inside the 50 states, the cannabis  market has been extremely volatile and speculative relying a lot on the aforementioned Aurora, Canopy, or fellow Canadian grower Tilray (NAS:TLRY) . For the ETF sector, that situation has created similar-looking baskets of Canadian-based equities that are not immediately impacted by state-by-state legalizations.

That’s not the case with MSOS, which uses total return swaps to gain exposure to US-based, Canadian-traded “plant touching” operations like Massachusetts-based Curaleaf Holdings (CNQ:CA:CURA) and New York-based medical dispensary Columbia Care (OTC:CCHWF)

Dan Ahrens, MSOS’ COO appreciated the interest of retail traders but made it clear that days like today are why he built the ETF to give investors access to actual US-based cannabis operators, often referred to as  “multi-state operators” or “MSOs.”

“We’re the only one that’s based on US exposure,” Ahrens said Wednesday as the ink dried on Cuomo’s signature in Albany. “At times, people take notice of that.”

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