Pot ETFs tumble, erasing earlier rally as US legalization hopes dim By Reuters

© Reuters. FILE PHOTO: A man smokes cannabis during the annual informal cannabis party in Denver, Colorado, U.S. April 20, 2023. REUTERS/Kevin Mohatt/File Photo

By Bansari Mayur Kamdar

(Reuters) – After a dizzying rally in September, exchange-traded funds that track cannabis stocks have slumped as hopes for the legalization of cannabis in the United States faded.

The AdvisorShares Pure US Cannabis ETF, with net assets of $467.2 million, fell 29.5% in October after a 17.6% gain in September. The smaller $2.5 million Roundhill Cannabis ETF lost nearly 31% in October after rising 21% a month earlier.

They are on track to end the year down 18% and 20%, respectively.

Funds had soared in September after a U.S. health agency’s proposal to reclassify cannabis as a lower-risk substance boosted expectations for federal legalization.

But three weeks of unrest last month in the U.S. House of Representatives as Republicans chose a new speaker blocked any legislative progress.

“When there is a lack of significant positive news, there are very few buyers and buying volume,” said Dan Ahrens, chief executive officer of AdvisorShares. “Expectations for U.S. federal reforms have already taken much longer than most investors anticipated and losses have been severe in the meantime.”

In October, the AdvisorShares fund had its best collection month in 11 months, recording purchases of $59.3 million, according to Lipper data. Net flows into the Roundhill ETF have been moderate.

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