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What UK investors need to know about this new medical marijuana ETF

London Stock Exchange recently announced that a new thematic exchange-traded fund (ETF) has been launched in the UK. It offers investors exposure to a wide range of stocks whose business is concentrated on medicinal cannabis.

Today, I’m introducing this ETF to our readers so that they can conduct further due diligence to see if medical cannabis investing is appropriate for them. First, a brief introduction to terminology…

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Cannabis, marijuana, hemp

In 2018, Canada became the first developed economy to legalise marijuana nationwide.

Most of us do not know the difference between cannabis, marijuana, and hemp very well. Therefore we often use these terms interchangeably.

Cannabis Sativa is the botanical name of the plant species. This plant has different strains, one of which is industrial hemp and another is marijuana. Therefore hemp and marijuana are sometimes referred to as ‘cousins’.

Industrial hemp naturally has high levels of cannabidiol (CBD) and low levels of tetrahydrocannabinol (THC). CBD is especially popular among consumers seeking relief from physical pain. THC is responsible for the ‘high’ from smoking marijuana. In other words, hemp does not have the psychoactive properties of marijuana.

The Medical Cannabis and Wellness ETF

According to the LSE website, on 22 January, HANetf and Canada-based asset manager, Purpose Investments, launched The Medical Cannabis and Wellness UCITS ETF (CBDX) on the LSE.

As of 2018, the global medical cannabis market size was about £10bn. By 2026, the market is expected to go over £100bn.

The new ETF tracks the Medical Cannabis and Wellness Equity Index, provided by Solactive, a Germany-based company that designs, calculates, and licenses financial indices.

The CBDX ETF consists of publicly listed companies conducting legal business activities in the medical cannabis, hemp, and CBD industry, including producers and suppliers of medical cannabis, CBD-focused biotech companies, companies leasing property to medical cannabis growers, and software solutions for medical cannabis producers.

Other developments in the UK

As of November 2018, the Home Office has allowed medical doctors to prescribe medicinal cannabis. However, the recreational sale and use of cannabis, a Class B drug (with possession punishable by five years in prison), is banned.

CBD products are still illegal to manufacture in Britain, though low concentration versions of cannabis oil are available in pharmacies. It is only through EU regulation that imported CBD products could be sold domestically without any kind of licence. With our departure from the EU, there may be changes regarding CBD, too.

Our readers may be surprised to learn that Britain is the biggest producer and exporter of legal cannabis in the world.

And that is thanks to one drug, Sativex, produced by Cambridge-based GW Pharmaceuticals. In 1998, the company obtained a unique Home Office licence to cultivate cannabis seeds. It now produces Sativex to treat spasms in multiple sclerosis patients. The company is listed in the NASDAQ stock market in the US.

Foolish takeaway

We are now witnessing more public debate on medical marijuana, CBD, and the rapidly changing cannabis industry. Medical cannabis is increasingly becoming a recognised investment theme.

In 2019, valuations in mostly Canada-based medical marijuana companies have compressed to attractive levels. And the sector may be for a rebound after a multi-month decline. Investors with a long-term horizon may want to follow the developments and consider buying into this new ETF.

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.