Is a Marijuana ETF a Good Way to Invest in Pot?

Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) holds the most popular pot stocks you can buy on the markets, and by holding a basket of stocks it can give you a lot of diversification in this up-and-coming industry. Its largest holdings, Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) and Canopy Growth Corp (TSX:WEED)(NYSE:CGC) make up more than 20% of the total portfolio.

It is a good way for investors to not get overly exposed to one marijuana stock but at the same time take advantage the overall trajectory of the industry. The one risk, however, is that normally when pot stocks are down, they’re all down.

In the past three months, the ETF has declined more than 30% as it too has struggled while some of the big stocks have dropped in value. The silver lining is that it has outperformed both Canopy Growth and Aurora during this time, which dropped 39% and 47%, respectively. The big advantage of ETFs is that they can help offset some of the big swings in the industry and avoid some of the big falls. The problem with the marijuana industry, is that stocks as a whole are very volatile and while you might minimize the stock-specific risk, the volatility from the industry itself is still very significant.

Overall, I wouldn’t suggest investing in this ETF because it likely won’t generate significant returns for you and won’t do much in protecting your portfolio. There’s plenty of risk when it comes to investing in marijuana today, and an ETF is going to do little to help you in that regard.