Cannabis ETF Investors: Bad Timers, but Committed

Cannabis ETF investors are a loyal bunch, but not so great at market timing.

Just look at one of the more popular cannabis ETFs, the AdvisorShares Pure U.S. Cannabis ETF managed by Dan Ahrens, where investors seem to buy high and sell low. They also make big bets on potentially game-changing events, such as getting safe banking legislation passed.

The ETF uses the symbol MSOS, playing on the acronym for multistate operators, and is popular in social media with traders using the hashtag #MSOSgang. You’ll find one of the most active observers of MSOS’ daily moves on Twitter: stay-at-home mom and lover of numbers Jane Boughner, otherwise known as Jungle Java. She’s the queen of her jungle, loves coffee, and found herself drawn to the daily machinations of the cannabis ETF.

Boughner has been tracking the inflows and outflows, and despite the difficult year, overall cannabis investor money has continued to flow into the ETF, albeit with poor timing.

Betting on Banking

AdvisorShares CEO Noah Hamman confirmed Boughner’s findings and noted that, in 2022, MSOS had net inflows of $307 million. He also pointed out that when investors thought the U.S. might pass the banking legislation known as the SAFE Act, money poured in.

“From Nov. 1, 2022, to Dec. 5, 2022, we had positive flows of $104,965,400, adding 8,460,000 shares,”  he said.

However, after the hoped-for legislation failed to happen, investors jumped ship. Hamman said that from Dec. 6, 2022, to Dec. 31, 2022, the ETF had “negative flows of $48,605,400 subtracting 5,690,000 shares.”

“December 5th seems to be that turning point when I think people started to think SAFE might not happen,” Hamman noted.

Bad Timing

Boughner also picked up on that trend. She said that it’s hard to just look at the cash coming in and out, because investors often buy when the stock prices are rising. Then they get disgruntled with share prices crashing and sell their positions.

Translating that to the ETF movement means when the cash comes in, the portfolio manager is buying shares at a higher price and selling at a lower price – instead of buying low and selling high.

Bear Market

Looking at the S&P/TSX Cannabis Index, overall cannabis stocks fell 59% over the past year. This index does not differentiate between Canadian and U.S. stocks, but most American cannabis companies trade in Canada since the U.S. exchanges won’t allow them to participate if they are plant-touching.

The Solactive North American Cannabis Index also shows a roughly 63% decline over the past year. While these aren’t great comparisons to the ETF, it does demonstrate that no matter which way you slice it, the overall industry valuations dropped considerably over the past year.

Ride or Dies

Cannabis investors are a passionate group and emotionally invested in the stocks as well as financially. Boughner has posted at times that the MSOS ETF might have dropped the number of shares it owns in a particular name – and found herself in investor crosshairs.

“I feel bad posting stuff like that, but overall he (Dan Ahrens) isn’t picking on anyone in particular,” she said. “They were so nasty.”

Hamman also seemed impressed at the loyalty and commitment of his cannabis investors, saying, “We had a rough year, as you probably well know, through 2022, of cannabis stock prices, and really a rough late half of 2021. But the fund was fairly stable in terms of its outstanding number of shares, and they keep fluctuating like crazy.

“But in terms of the people using it and holding it, which could be for a variety of reasons, all seemed to be consistently staying in the fund, which was nice to see.”