Pot ETFs tumble, erasing earlier rally as US legalization hopes dim

By Bansari Mayur Kamdar

(Reuters) - After a dizzying rally in September, exchange-traded funds tracking cannabis stocks have fallen to earth on fading hopes over pot legalization in the United States.

The AdvisorShares Pure U.S. Cannabis ETF, which has net assets of $467.2 million, fell 29.5% in October after a 17.6% gain in September. The smaller $2.5-million Roundhill Cannabis ETF shed nearly 31% in October following a 21% surge a month earlier.

They are on track to end the year 18% and 20% lower respectively.

The funds had soared in September after a U.S. health agency's proposal to reclassify cannabis as a lower-risk substance boosted expectations of legalization at the federal level.

But three weeks of turmoil last month in the U.S. House of Representatives as Republicans decided on a new speaker stalled any legislative progress.

"When there's a lack of significant positive news, there's very few buyers and buying volume," said Dan Ahrens, managing director of AdvisorShares. "Expectations of U.S. federal reforms have already taken much longer than most investors expected and losses have been severe while waiting."

In October, the AdvisorShares fund saw its best month of inflows in 11 months, logging buys of $59.3 million, according to Lipper data. Net flows into the Roundhill ETF were subdued.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Rod Nickel)