An exchange-traded fund (ETF) is an investment fund. It is traded in stock exchanges like stocks. Assets an ETF can hold include bonds, stocks, and commodities. It is designed with asystem that allows it to trade close to its net asset value. Because of the marijuana legalization policies of the U.S. federal government, investors have avoided such markets. Ignoring the ‘risks’, a couple of new Canadian exchange-traded funds are planning to give investors exposure to these markets. “Horizons ETFs Management Canada Inc.filed a preliminary prospectus to launchthe Junior Growers Index ETF, which includes companies with operations in the U.S. …Separately, Evolve Funds Group Inc.filed…to launch the world’s actively managed marijuana ETF under the ticker SEED.”—Bloomberg.The Canadian government is preparing to legalize weed across all its provinces in June, and this disparity have caused a valuation gap between cannabis stocks operating in Canada and those with businesses in the U.S. This prompted more companies with assets in America to join NEO and the Canadian Securities Exchange. Organisations like MPX, Bioceutical Corp., Friday Night Inc., and Marapharm Ventures Inc. Stand to benefit from the new Horizons ETF.

For every investment, there is a degree of risk, depending on the speculated returns. In essence, the potential of high returns comes with a corresponding amount of risk. Last year, when Horizons Marijuana Life Sciences Index ETF was launched, it generated a return of approximately 85%. For the few weeks of 2018,the marijuana ETF is already up by a double-digit percentage. So, with such high returns for Horizons Marijuana top ETF in the first few quarters of operation, can it be considered too risky?

If you ask me that question, the first response I’d give is this: we have to identify what the term ‘risk’ means in this context.It is worthy of more, that Horizons Marijuana ETF spread risk across a large number of individual stocks, and that is one thing any investor loves about ETFs. Horizons’ risk is highly concentrated in just a few stocks. Aurora Cannabis, Canopy Growth, MedReleaf, and Aphria are the top 4 holdings. These holdings consolidate to make up more than 50% of Horizons Marijuana ETF investments.Almost 80% of Horizons’ investments are in just 10 stocks. Literally speaking, it appears like risky business.

Currently, Horizons Marijuana Life Sciences Index ETF (HMMJ) trades exclusively on the Toronto Stock Exchange (TSX). Nevertheless, plenty U.S. citizens have taken interest in it because they can buy shares if their broker can carry out orders on the TSX. HMMJ does not have immediate plans to invest in stocks that basically focus on the medical or recreational marijuana market in the U.S. and Canada. It will, however, be investing in marijuana businesses which makes only a part of their revenue from the cannabis industry in U.S. states where both medical and recreational use of cannabis has been legalized by state law. Canada legalizes recreational marijuana as anticipated this year, the ETF will likely invest in stocks that target that market.

There are two risks to be considered in this case: (1) the legalization of recreational marijuana may encounter some delay; and (2) the market may not be as big as expected. Giving the incredibly high levels of these stocks, it would be bad news for Horizons Marijuana ETF to encounter any obstacles.We must however, understand that other stocks you have risks. On it’s first trading day, Horizons’sassets were worth $5.7 million. In a few days, the assets projected astronomically to worth $355 million.

In a phone interview with Steve Hawkins, co-chief executive officer of Toronto-based Horizons, Bloomberg reports him saying “with the change in the capital markets, the growth of the cannabis sector, generally, it’s opened the door for us to be able to create an ETF that is much more specialized for marijuana growers…this is going to be a higher-risk product. It is going to be significantly more volatile in our estimation.”

So, is Horizons Marijuana Life Sciences Index risky? This question depends to a large extent, on the individual investor. A potential investor might consider the cons and not invest, while another may. For the latter, the potential returns could be a justification in buying HMMJ.

The marijuana market is steadily growing stronger. I am assuming that the legalization of recreational weed in Canada in June won’t be stopped. With the stock market, the marijuana industry will generate massive revenue in 2018. The Horizons MarijuanaLife Services Index ETF certainly has a lot of risk, but there’s also the chance to make huge profits investing in it.