The United States has recently taken more steps towards the legalization of cannabis, or marijuana, on the federal level. Recently, the House of Representatives passed two new bills that revolve around the drug, the first being new legislation that would decriminalize cannabis and expunge nonviolent marijuana-related convictions, and another expanding legal medical cannabis research.
While the two measures are not expected to pass in the Senate, they mark a milestone for the legal cannabis industry. Currently, 15 states in the U.S. have fully legalized cannabis for both medical and recreational use, with the majority of other states having the drug legal at some level. This ongoing trend towards recreational legalization is permanently shifting consumer demand, with U.S. cannabis sales reaching record levels of $238 million over Thanksgiving weekend, according to cannabis research company Akerna (NASDAQ: KERN).
The legal cannabis industry is becoming a powerhouse revenue maker. In Canada, the first G7 country to fully legalize marijuana, the rapidly expanding market generated about $8.16 billion for the country's economy last year. Legal marijuana in the U.S. could aid states in the recovery from the coronavirus pandemic as the industry generates jobs, money for state governments through tax revenues.
For investors, the emerging legal marijuana industry suggests plenty of new opportunities for investment and growth. And like any emerging industry, its prudent to invest in exchange-traded funds (ETF) over individual stocks to keep risks low. Yet, marijuana ETFs have generally faced setbacks since their inception. The main reason behind this is that many banks are hesitant to back ETFs tracking companies in a business that is not federally legal.
There are currently 9 cannabis ETFs traded in U.S. markets. These ETFs tend to invest in pharmaceutical and biotech companies that research the extended medical applications for marijuana over dispensaries and cultivation. Other exposure standouts include greenhouse suppliers and fertilizer producers, as well as tobacco companies that have invested in the industry's future growth.
Cannabis ETFs hold total assets under management of $1.51 billion, with the largest fund--ETFMG Alternative Harvest ETF (NYSE: MJ)--managing $1.02 billion. The average expense ratio for these funds is about 0.70%, with most investing in companies in U.S. and Canada. The best performing fund at this time is AdvisorShares Pure Cannabis ETF (NYSE: YOLO), which is up over 36% for its year-to-date.