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A number one exchange-traded fund within the cannabis space will close up shop as investor interest within the legally restricted industry wanes.
AdvisorShares, the biggest cannabis fund manager, said its Poseidon Dynamic Cannabis ETF will see its final day of trading Aug. 25. The fund will liquidate assets and pay shareholders Sept. 1, according to a notice on the fund’s website.
The fund, led by sibling founders Emily & Morgan Paxhia, launched on the Recent York Stock Exchange in November 2021 during a pandemic-era cannabis sales boom.
The closure comes as investors lose interest within the quasi-legal cannabis industry that has struggled to scale. Wholesale prices have declined, and Congress has not reformed federal laws which have hampered the sector’s growth.
In an emailed statement to CNBC, co-founder Morgan Paxhia said the fund was not “immune to the broader macro-economic environment and, more specifically, the dramatic shift in investor sentiment that has impacted the cannabis industry.”
While nearly half of U.S. states have legalized the recreational use of cannabis by adults, it stays illegal on the federal level. Its classification as a Schedule I substance together with heroin and LSD has barred the sector from accessing most banking services and from being traded across state lines, causing a glut of cannabis in lots of states and a drop in prices.
Sliding equity values have made investors turn away from the industry and capital has dried up.
Poseidon Investment Management, which began in 2013 as one among the primary cannabis-focused hedge funds within the U.S., has seen its ETF lose roughly 74% in value because it was founded, versus a 1.7% decline within the S&P 500.
Its value has fallen 65% within the last yr and traded under $1 Tuesday. Meanwhile, Pure US Cannabis ETF, one other fund within the industry by AdvisorShares, plummeted about 60% through the same period.
Poseidon is the most recent casualty in an industry strained by market forces and economic policy.
Last month, a $2 billion merger between cannabis multistate operators Cresco Labs and Columbia Care went up in smoke greater than a yr after the businesses announced the acquisition. Mastercard, in a move that further alienates the cannabis industry from big banking, announced last month it should stop allowing cannabis transactions on its debit cards to be in compliance with federal law.