Major Cannabis ETF Change

We wrote about the death of a cannabis ETF, Amplify U.S. Alternative Harvest ETF, in our weekly newsletter on January 9th. Amplify didn’t share exactly how the shutdown of MJUS would play out.  Here is what I said:

What  the MJUS liquidation will do to cannabis stocks is not clear. On the one hand, if the shares it holds are sold into the market, the stocks in the ETF will be pressured. The amount of shares is high relative to the daily trading. On the other hand, if the largest holder, MJ, exchanges it shares, which are 94% of the outstanding shares, for the holdings, the impact will be minimal.

Well, this morning, Amplify informed the world, again very unclearly, about what happened. The press release discussed the new alignment of MJ and CNBS. The Alternative Harvest ETF (NYSE Arca: MJ) will rely now upon the Seymour Cannabis ETF (NYSE Arca: CNBS) for access to MSOs. The press release never said exactly what happened to MJUS, but it seems clear: CNBS took its assets. A visit to the CNBS website quickly hides this, as it said that the total fund was just $11.5 million, and MJUS was about $66 million:

A look, though, at the holdings of the fund, show what has happened, as the portfolio looks just like the old MJUS portfolio, and the size is much larger than $11.5 million. There is that much in just the largest position!

Earlier this month, MJ had a 40% stake in MJUS, and now it has a 40% stake in CNBS, with a lot more shares of CNBS than the Amplify CNBS website says are outstanding:

MJ is the second largest cannabis ETF, and it is better diversified than the largest cannabis ETF, AdvisorShares Pure US Cannabis ETF (NYSE Arca: MSOS), which holds three extremely large positions:

MSOS has total assets under management of $443 million, while MJ is smaller at $144 million.

When the news hit that MJUS was liquidating, investors got even more nervous about MSOs. MJUS and MSOS posted new all-time lows very recently as did MJ (and CNBS). Note that both CNBS and MJ are doing reverse splits in February as detailed in the press release.

We stated in the newsletter on January 9th that perhaps the ending of MJUS could cause a challenge for the cannabis stocks if Amplify were to liquidate the stocks, which they did not. MSOs are highly in need of rescheduling, which would end 280E taxation. The restructuring of Amplify’s cannabis ETF offerings will have no impact on how these stocks perform going forward.

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