Cannabis ETFs: Essential factors to consider before investing

1. Curation

When you decide to buy a cannabis ETF (or any other), you want to know what’s in the portfolio. Although there are several cannabis ETFs, none are the same.

Some ETFs focus solely on cannabis companies, while others trade hemp and CBD medicines. Other ETFs invest in companies that don’t touch investments, such as B. Real Estate Investment Trusts (REITs) or technology or software solutions. Still others invest strictly in

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US-based companies that will form the backbone of the US retail supply chain when cannabis is legalized.

Be sure to choose an ETF that you think will maximize returns as more states open up legal cannabis markets.

2. Expertise

The cannabis sector is inherently complex and volatile. Being illegal at the federal level poses challenges for even the most established cannabis companies.

That’s a good reason to invest in an ETF that should have someone keeping a close eye on your investment. There are many factors to consider when analyzing the management team – years of experience and focus, background and the type of investments they specialize in. For example, hedge fund managers are known to be familiar with high-risk management strategies that maximize returns. On the other hand, investment bankers generally have more in-depth knowledge of underwriting and transactions than portfolio and risk management.

Consider the expertise of the management team behind an ETF and choose a team that fits your risk appetite and timeline for returns.

3rd execution

Another reason to buy ETFs is the variety of strategies experienced management teams can employ. Unlike regular day traders, who simply buy and sell stocks, fund managers may have the ability to employ a range of sophisticated investment strategies.

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For example, at Poseidon we use Dynamic Leverage Capability, which means we can be 80% market exposure or go as high as 150% (1.5X). Then we can manage both the portfolio and its leverage at our discretion based on various internal inputs. Early investors in cannabis have already seen higher-than-expected returns based on the beginning phases of the industry’s acceleration.

Photo by Olena Ruban/Getty Images

Other common ETF strategies that management teams can use include:

● Long/Short Equity – A Fund may at times hold both short and long positions in various asset classes

● Merger Arbitrage – The simultaneous buying and selling of stocks in two merging companies in order to make “risk-free” profits

● Global Macro — Investment decisions based on global economic trends

● Event Driven – Strategy that capitalizes on a specific event such as a liquidation or bankruptcy

● Distressed Debt – Buying debt from troubled companies at a discount

Typically, the strategy of an ETF is described in the prospectus. Find, research, and invest in a strategy you’re comfortable with.

The trend towards legalizing cannabis is clear

Although federal legalization has been politically shelved, the trend towards expanding access to cannabis is clear. Today there are 18 states with legal adult use and 38 states with legal medical use. Cannabis ETFs are an easy way for investors to gain exposure to this industry today to capitalize on the wave of future gains from this growing industry.

This article originally appeared on Benzinga and has been republished with permission.