MSOS Could Plunge

When I last wrote about the AdvisorShares Pure US Cannabis ETF (MSOS) in April, right after the stock market had plunged due to concerns about the tariffs, it was a $2.23. and it ended August at $5.57, which is up 150%. I called it a terrible way to invest in cannabis, which I think it still is, but what a rally!

I did say in that article that there were better ideas. For those that must own an ETF, there are not a lot of options, and I did say that one was better, but it is up "only" 127%. I also suggested three Canadian LPs, and they are up more on average:

I also suggested that GrowGeneration (GRWG), an ancillary company, could be better, and it is up "only" 92%.

So, in this follow-up, I explain why MSOS has gone up, how it has changed, and why I think it is very risky.

Why MSOS Has Rallied Sharply

MSOS in Q3 is up 131%, most of which happened after August 8th. It had rallied 55.2% from 6/30 through 8/08. On 8/8, the Wall Street Journal released an article after the market closed on President Trump potentially rescheduling, which was followed up with a press conference on 8/11 where he did mention this. I discussed this in an article published here on 8/12. Since 8/8, MSOS has now increased 48.9%, while the New Cannabis Ventures Global Cannabis Stock Index has gained 36.0%.

MSOs clearly would benefit from 280E taxation ending. MSOS has three stocks that represented 69.3% of the portfolio on 8/8: Green Thumb Industries (GTBIF) at 26.3%, Curaleaf (CURLF) at 21.6% and Trulieve (TCNNF) at 21.4%. Here is how they have done since 8/8:

GTI is up, but it has increased less than the 48.9% gain in MSOS as well as the 36.0% in the broader Global Cannabis Stock Index. It is a safer stock than many of its peers due to its very low level of debt. It also has positive earnings per share despite paying 280E taxes.

Cannabis stocks have been soaring even if they don't benefit at all from 280E taxation going away. Tilray Brands (TLRY), for example, has gained 112.7% since 8/08. The reason? Bullishness in general after a very long and deep bear market. Despite its huge rally in Q3, MSOS is still down 50.5% since its peak in 2024 on 4/30, which was the day the DEA confirmed it was going to reschedule cannabis from Schedule I to Schedule III. This never happened, though.

Prices have soared, trading volumes have increased, and there are lots of people talking. Still, though 3 weeks have already passed since Trump said the decision to reschedule would be within a few weeks. Plus, what if the government ends up changing it to Schedule II and not Schedule III? Whoops! 280E taxation would remain. While it might take some time, the government can and probably will impose some other taxation.

It seems to me that investors and traders (mainly traders!) are ahead of themselves again. We have been here and done this already! I hope that 280E taxation goes away, but it may not.

Portfolio Changes in MSOS

At the beginning of the year, MSOS had 130.575 million shares outstanding. It increased to 136.825 million by early February, but it dipped a bit. On 6/30, there were 132.125 million shares outstanding, a gain of only 1.2%, but now there are 177.025 million, a gain of 35.6% year-to-date so far.

The most recent portfolio shows that MSOS holds exposure in 20 names:

The cash level has gone up but remains low. The diversity of the portfolio is poor, as the top 3 names are 65.2%. The 7 names above 5% total 91.1%.

At the beginning of 2025, MSOS held 23 names. It has exited 5 (several of which have become bankrupt) and added 2, including SNDL (SNDL) and Village Farms (VFF). The top 3 holdings then were GTI at 36.4%, Trulieve at 19.5% and Curaleaf at 15.3% ( a total of 71.2%).While MSOS has seen its shares outstanding increase by 35.6%, shares of GTI have increased by only 1.3%. Exposure to Curaleaf has increased by 45.7%, and exposure to Trulieve has increased by 26.6%.

Why MSOS Is at Risk

If 280E taxation stays, the MSOs will likely fall a lot, and this is the biggest risk. Secondarily, MSOS may see redemptions again, which would pressure especially the three very large positions.

I kind of like GTI now, as I discuss below

Better Ideas Than MSOS

For those who think that rescheduling will happen and will end 280E taxation, I think GTI makes more sense (and do own a small amount in my model portfolio at 420 Investor). I think that Verano (VRNOF) could make sense too. Here is the chart of GTI and MSOS over the past 5 years:

In the Ancillaries, I include three in my model portfolio at 420 Investor: Chicago Atlantic (REFI), Innovative Industrial Properties (IIPR) and WM Technology (MAPS). The first two are cannabis REITs, and MAPS runs Weedmaps. I think the two REITs are risky, but they have less risk than the MSOs. MAPS has a lot of cash, no debt and seems awfully cheap, especially for a NASDAQ-listed stock that pays no 280E taxation. Here is how these stocks have performed relative to MSOS since the end of 2022:

I like Canadian LPs less today than I did in April. I still like Organigram, which I own in the model portfolio, and I recently added Cronos Group too. Both stocks have strategic investors, and both companies have lots of cash. Since the end of 2022, CRON has increased slightly, which has outpaced MSOS, while Organigram has lagged.:

Conclusion

I am not much of MSOS, but it doesn't really have a lot of competition. Cannabis stocks have been in a bear market for almost 5 years, and many funds have closed down.

The things that bother me about MSOS are that they have terribly high exposures to some stocks, they have no index, and they don't seem to be "actively managed" like they claim.

Rescheduling may happen, and it may not. Even if it happens, 280E taxation may remain (if Schedule II is the new classification), and there may be another tax imposed. In the meantime, it seems like games are being played.

Again, for those who believe 280E taxation will end, there are some MSOs to buy that make more sense than MSOS, and there are other cannabis stocks to consider too, like the three ancillary stocks I mentioned.

While CRON and OGI may go down if MSOS crashes, they have better balance sheets and business models that don't count on U.S. sales.