Why you should care
Because we sometimes exercise our vices with much greater care than we do our virtues.
Getting ahold of AdvisorShares’ Chief Operating Officer Dan Ahrens was a bitch. Not Beyoncé hard, but the dude is busy and for good reason. On April 16, just in time for 4/20, Ahrens had done what seemed like a pothead’s fever dream: He announced the public trading of AdvisorShares Pure Cannabis ETF with its totally genius ticker symbol: YOLO.
The YOLO ETF, or exchange-traded fund, is the first listed, actively managed American fund expressly focused on making your money grow via investing in cannabis equity securities. Which means it went through a full, regular approval process with the Securities and Exchange Commission and was preapproved by its custodian bank, the Bank of New York Mellon. Something that can’t exactly be said about its nearest competing fund, ETFMG Alternative Harvest ETF, an index fund that must blindly follow the index.
So in an unexpected twist, acts and actions that in past years and places could have gotten you incarcerated — buying marijuana, smoking marijuana, eating marijuana, selling marijuana — are now connected to investments that pad your financial featherbed. Call it getting rich while getting high.
“This feels much more than strange,” Ahrens says. “It’s outrageous if you think about it, but we’ve hit critical mass.” With bills in Congress, marijuana legalized in a handful of states, the Hemp Farming Bill, Congress moving toward legalizing pot-related banking and the Securities and Exchange Commission onboard, it’s clear that Ahrens is not too far off the money here.
This development should surprise no one who’s been even vaguely aware of the drum Ahrens has been beating since 2002, when, pre-AdvisorShares, he launched a Vice ETF, a move clearly codified in Ahrens’ must-read tome Investing in Vice: The Recession-Proof Portfolio of Booze, Bets, Bombs, and Butts. Ahrens tapped into what many on the business end of the vice business had already figured out. If you’re a smoker with $10 left to spend on a meal or cigarettes, you’re going to enjoy that smoke and to hell with the sandwich.
I’m not going to say that I’m for or against recreational drug use … but if you invested in alcohol at the end of Prohibition, you’d be doing very well.
Such straight talk wouldn’t be out of step for Texas, the state he hails from and is constantly advising folks not to mess with. The Texan in Ahrens might have motivated his early life midstream correction as well. “When I was in school, I actually expected to major in engineering,” Ahrens says, “but made a late decision on business school instead.” He’s been in finance ever since, for the same reason robber Willie Sutton chose to go into banking: It’s where the money is. So when the 53-year-old married father of two is not out running and biking, Ahrens is a fan of those other monied metrics: good wine, good whiskey and travel.
While it provides a kind of progressive realpolitik in an era of sustainability investing, Ahrens’ YOLO fund is really just deadly honest about humans’ actual proclivities: Not what we think we should do when called to account, but what we really do. And given that 10 states plus Washington, D.C., have legalized marijuana and the end of 2018 saw it fully legal in Canada, industry estimates circling around $50 billion in the United States can’t be ignored. And those same industry estimates expect it to hit $80 billion in the next 11 years.
“Medical and pharmaceutical biotech companies have not yet done a lot of work with CBD,” says Ahrens, referring to cannabidiol, the non-intoxicating marijuana extract that’s being hailed as a modern miracle tincture for a whole host of maladies — claims that might give more sober minds pause. In fact, sober minds might give the entire enterprise pause as they have in the small but vocal resistance to legalizing marijuana recreationally. As recently as last year, Ahrens was one of those voices.
“Before the legal floodgates opened,” Ahrens says, “it made no business sense.”
Post-legal floodgates? “The biggest issue that I can see is that regulation of the industry itself isn’t really set,” says Chad Bailey, Lending Club’s director of credit. “And there will be failures, but for the companies that survive, it’s going to be huge. Not billion-dollar huge. Trillion-dollar huge.”
Ahrens seconds the point with a historical analogy. “I’m not going to say that I’m for or against recreational drug use,” he says. “But if you invested in alcohol at the end of prohibition, you’d be doing very well.”
But would you? Some might say that vice investing seems to require a certain amount of moral myopia since, according to the Centers for Disease Control and Prevention, cigarettes kill more than 480,000 people a year in the U.S., including more than 41,000 from secondhand smoke.
That’s 1,300 dead every day, downed by one of the most profitable consumer products there is. And even if one of the long-standing arguments in favor of marijuana used both medically and recreationally has been that it’s not as dangerous as tobacco, there’s still a question being debated: Is this the right thing for us to be collectively doing? Add in the substantial death and health problems attributed to alcohol and the lives ruined by gambling, and this all begins to look less rosy.
“It’s very complicated,” and if Ahrens doesn’t actually sigh, it sounds like he’s about to. “People have been using tobacco since the beginning of time, casinos are very into sustainable practices, and I believe the majority of Americans who support drinking want it to be socially responsible.”
A careful and concerned approach seems to be just part of how Ahrens does business, according to short seller John Del Vecchio of Ranger Alternative Management. “What AdvisorShares did with YOLO … was focus on addressing concerns so that the product can trade and serve the public properly,” says Del Vecchio. “Pushing back at the SEC is a good recipe for getting nowhere.”
So true to form for AdvisorShares’ managing director and YOLO’s lead portfolio manager, who, in the face of serious cons — fraud, business failures, mistakes and legal setbacks — is still full speed ahead on the domestic and foreign cannabis equity securities pros. “I’m really much more libertarian about this,” concludes Ahrens, who wouldn’t be good at what he does if his sights were not set on serious long-term capital appreciation. “And I’m going to invest in this.”
Read more: When the government said marijuana made you crazy.
Correction: The original version of this article misidentified Chad Bailey’s title.