New York, USA (TEH) – The Poseidon Dynamic Cannabis ETF, managed by AdvisorShares, the largest cannabis fund manager, is set to close its doors on August 25. The decision to liquidate assets and pay shareholders by September 1 comes as investor interest in the legally restricted industry wanes, reflecting broader challenges faced by the cannabis sector.
The fund, spearheaded by sibling founders Emily & Morgan Paxhia, was launched on the New York Stock Exchange in November 2021, during a pandemic-era cannabis sales boom. However, the closure is emblematic of the struggles plaguing the quasi-legal cannabis industry, which has found it difficult to scale. Wholesale prices have declined, and the lack of federal reform has stymied the sector’s growth.
In an emailed statement to CNBC, co-founder Morgan Paxhia acknowledged that 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.”
The situation is further complicated by the legal status of cannabis in the United States. While nearly half of U.S. states have legalized the recreational use of cannabis by adults, it remains illegal at the federal level. Classified as a Schedule I substance alongside heroin and LSD, the industry has been barred from accessing most banking services and from trading across state lines. This has led to a glut of cannabis in many states and a consequent drop in prices.
The sliding equity values have caused investors to turn away from the industry, and capital has dried up. Poseidon Investment Management, which began in 2013 as one of the first cannabis-focused hedge funds in the U.S., has seen its ETF lose roughly 74% in value since its inception, versus a 1.7% decline in the S&P 500. Its value has plummeted 65% in the last year and traded under $1 on Tuesday.
Other funds in the industry have faced similar fates. Pure US Cannabis ETF, another fund by AdvisorShares, has plummeted about 60% during the same period.
Poseidon’s closure is not an isolated incident but rather the latest 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 more than a year after the companies announced the acquisition. Mastercard’s recent announcement that it will stop allowing cannabis transactions on its debit cards, in compliance with federal law, further alienates the cannabis industry from big banking.
The Poseidon Dynamic Cannabis ETF’s closure is a stark reminder of the challenges facing the cannabis industry. It underscores the urgent need for legislative reform and a reevaluation of economic policies that have hampered growth. As the industry navigates these turbulent waters, the question remains: Is Poseidon’s downfall a harbinger of more significant struggles to come, or can the industry rebound and thrive in a rapidly changing landscape?