CNBC’s Pete And Jon Najarian On Their New NYSE-Traded Cannabis ETF: ‘It’s Going To Be A $1-Billion ETF’
By Javier Hasse – July 18, 2019
The launch of Innovation Shares’ The Cannabis ETF (NYSE: THCX) last week turned heads and opened pocketbooks with its unique approach to cannabis investing.
Rather than investing in diverse sin goods, including tobacco or alcohol companies – like other marijuana ETFs do — The Cannabis ETF is a pure-play fund focused on just one thing: cannabis.
While the launch was widely reported by the media, including Forbes, one not-at-all-small detail seemed to slip through the cracks: Jon Najarian is one of the fund’s advisors. He’s the co-founder of Investitute, a star on CNBC’s “The Halftime Report” and a retired Chicago Bears player.
So is his brother Pete Najarian, a contributor to CNBC’s “Halftime Report” and “Fast Money,” co-founder of Investitute and optionMONSTER and a former NFL linebacker.
“We have a cannabis ETF... [it] rebalances every month and it's got a great symbol: THCX. We think this is going to be a $1-billion cannabis ETF.”
Jon also mentioned all the stocks in this ETF have a market cap of
Seeking to learn more about the fund now that it’s fully operational, I reached out to Jon and Pete.
The Monthly Reset
While the past couple of weeks were especially volatile for cannabis stocks, the industry rarely, if ever, experiences regular growth cycles when it comes to public companies.
This means there is no real standard for rebalancing either. Some funds like The ETFMG Alternative Harvest ETF (NYSE: MJ) rebalance their holdings on a quarterly basis.
For Innovation Shares’ Cannabis ETF, rebalancing occurs monthly.
“The fund resets each month, giving us a better pure-play because we are not going to get trapped in the same dog-chasing-the-tail clawbacks,” Pete said.
“Holders of other cannabis ETFs may get trapped in a position that they cannot get out of for two to three months, depending on whether or not a bad or good thing happens.”
“The fund resets each month, giving us a better pure-play because we are not going to get trapped in the same dog-chasing-the-tail clawbacks.”
Unlike its peers, the Evolve Marijuana ETF (TSE:SEED), the best-performing cannabis ETF in Canada, and The AdvisorShares Pure Cannabis ETF (NYSE: YOLO) change the weighting of their holdings in a dynamic fashion, when managers consider it pertinent, necessary, opportune or prudent.
But the Najarian brothers said once-a-month rebalancing is the key to creating the most efficient fund.
“If we wanted to do a hedge fund, we would have done a hedge fund,” Jon said.
“That approach personally evokes the idea and subsequent risks of operating a hedge fund; those who desire that style of fund will subscribe to those funds.”
That strategy exposes a fund to much greater volatility, and that’s why the Najarians avoided the approach, Jon said.
Taking the middle ground between actively managed funds and quarterly rebalancing allows The Cannabis ETF to charge lower management fees than its competitors. With a 70-bps management fee, Innovation Shares offers the most economical management cost of any U.S.-listed cannabis ETF – although it’s still higher than the average expense ratio of 0.44%calculated by the Wall Street Journal.
“Something we take great pride in is that we are cheaper on the fee structure than all other cannabis ETFs,” Pete said. “The real winners in this space are people who want exposure to the exciting part of cannabis, both medical and recreational, rather than sin goods or ancillary businesses.”
The launch of The Cannabis ETF was originally scheduled for January, but the U.S. government shutdown led Innovation Shares to change its plans.
The shutdown shocked exchanges and share prices alike, delaying new funds from launching. But the delay might have been a blessing in disguise.
“We would’ve listed in January, but the government shutdown trapped our paperwork,” Jon said.
“As far as NYSE, they’ve been incredibly supportive so far, and we are happy to list on the exchange considered to be the metaphorical gold standard,” he said. “However, by listing in July rather than January, in many ways you could say we feel like we dodged bullets.”
The Margin Problem
Many cannabis investors share two concerns: declining prices and shirking margins, Jon said.
“The price of cannabis production per gram has and is continuing to fall. It’s $1 a gram in the U.S., $1.25 in Canada and 0.09 cents in the Congo. Granted, I don’t imagine that cannabis or cannabis oil will be imported from Colombia or the Congo any time soon. However, as long as locals trust the companies doing the extraction and assembling the formulation, they’ll be content and will purchase the lowest-cost good.”
Finally, Jon weighed in on the performance of the THCX ETF so far.
“The first few days, we were at almost 250,000 shares traded. It’s moderately priced too, in the $20s, making it the fastest-growing cannabis ETF by volume yet.”
“We are incredibly pleased with the volume so far. The first few days, we were at almost 250,000shares traded. It’s moderately priced too, in the $20s, making it the fastest-growing cannabis ETF by volume yet.”