Why Investors Should Exit The MJ ETF Now

The Amplify Alternative Harvest ETF (MJ) has long been a symbol of speculative optimism in the cannabis sector. According to the ETF Research Center, the global cannabis market is projected to grow at a compound annual rate of 34% through 2030. However, the ETF's performance-marked by a -25.91% average annual return since inception and a 560.7% annualized volatility-underscores a stark disconnect between macro-level expectations and micro-level realities, as reflected in Macrotrends' P/E data for Canopy Growth.

Regulatory Uncertainty and Structural Weaknesses

The cannabis sector's growth narrative hinges on regulatory normalization, yet the U.S. federal classification of marijuana as a Schedule I substance remains a critical barrier, as noted by NerdWallet. This status perpetuates banking restrictions, tax inefficiencies, and operational risks for companies like those in the MJ ETF. For instance, Tilray Brands, a top holding, reported a 4-point decline in its Cannabis segment gross margin to 36% in Q2 2025, attributed to participation in lower-margin product categories in Canada's oversaturated adult-use market, according to ETF Research Center. Similarly, Canopy Growth's Canadian adult-use segment saw a 24% revenue drop due to supply chain disruptions, despite a 32% growth in its Storz & Bickel device business, as detailed in the Canopy Growth press release. These examples highlight how regulatory fragmentation and market saturation are eroding profitability even for industry leaders.

Valuation Risks and Financial Struggles

The MJ ETF's concentration in large-cap cannabis firms-Tilray, Cronos Group, and Canopy Growth account for a significant portion of its portfolio-exposes investors to concentrated downside risks. Tilray's reliance on equity financing to manage working capital, including a $22.5 million share issuance in Q2 2025, signals weak organic cash generation, per ETF Research Center. Cronos Group, despite a 21% year-over-year revenue increase, reported a $38.5 million net loss in Q2 2025, driven by foreign exchange losses and operational inefficiencies, according to the Nasdaq release. Meanwhile, Canopy Growth's P/E ratio remains at 0.00, reflecting persistent net losses and a lack of earnings visibility, as shown by Macrotrends.

Debt levels further compound these risks. Canopy Growth reduced its total debt by 49% to $304 million in Q2 2025, as noted in the Canopy Growth press release, but its adjusted EBITDA loss of $6 million and free cash flow outflow of $56 million in the same period reveal ongoing liquidity pressures, according to ETF Research Center. The ETF's high expense ratio of 0.75%-medium compared to broader markets, per ETF Research Center-fails to justify its exposure to companies struggling to achieve profitability.

A Sector at a Crossroads

While the cannabis industry's long-term potential is undeniable, the MJ ETF's current composition and performance make it a poor vehicle for capturing that growth. The sector's challenges-ranging from regulatory delays to operational inefficiencies-have created a valuation gap that is unlikely to close without transformative policy shifts. For example, the DEA's delayed rescheduling of cannabis and Canada's regulatory overhauls, highlighted in the Cova Software blog, remain uncertain catalysts. Investors would be better served by redirecting capital to sectors with clearer regulatory pathways and stronger balance sheets.

Conclusion

The MJ ETF's trajectory is a cautionary tale of overhyped potential and underdelivered fundamentals. With regulatory risks unresolved, key holdings underperforming, and valuation metrics deteriorating, the case for exiting the ETF is compelling. Investors seeking exposure to cannabis innovation should instead focus on niche opportunities with clearer monetization strategies and less regulatory drag. The sector's future may be bright, but the current vehicle for accessing it is anything but.