BlackRock is nearing cannabis ETF

The fund industry is getting more relaxed about marijuana investment.

BlackRock Inc., the world’s largest asset manager, is “likely” to start a cannabis-focused exchange-traded fund, as concern about the legality of such strategies starts to fade, according to Bloomberg Intelligence. Other large issuers could follow, boosting assets in pot ETFs to US$5 billion over the next few years, analysts led by Eric Balchunas wrote in a report on Friday.

“Like a big movie studio, BlackRock is apt to copy others’ successful theme ETFs,” wrote Balchunas. “BlackRock coming in would add some legitimacy along with some fee pressure.” A spokesman for the money manager said the firm has no plans to offer a marijuana ETF.

It all sounds a bit pie in the sky, but BlackRock is investing in thematic strategies. These types of funds have quickly become big business, attracting more than US$49 billion in the U.S. Last month, the money manager said that it plans to create and market ETFs based on five “megatrends,” which go beyond traditional sectors and geographic focuses, although none of these explicitly dovetails with cannabis stocks.

Meanwhile, the legal environment for pot funds is looking much more friendly. Conflicting U.S. laws around weed had encouraged big banks to shy away from providing custody services to would-be issuers of marijuana ETFs. But now the U.S. regulator is asking pot ETFs to produce third-party legal opinions verifying that they don’t violate state or federal laws.

The world’s largest weed ETF, the $1.1 billion ETFMG Alternative Harvest ETF, submitted legal documents in May stating that the ETF and its investments did not run afoul of any laws.

Any entry by BlackRock would shake up the nascent category, and only about two or three products will win out, Balchunas wrote.