American Growth Fund is betting that a mutual fund largely invested in the budding U.S. marijuana industry will find an active supply of buyers.
As state governments pass legislation aimed at curbing long-time bans on the medical and recreational use of cannabis, the firm has recalibrated a diversified mutual fund, originally launched in 2011, to invest a minimum of 80% of its portfolio in the industry, according to the firm.
While exposure to the drug is not intended to be the "sole focus point" of the American Growth Fund Series Two Class E, the fund's prospectus on July 29 said it will now be focused mostly on “common stocks and securities convertible into common stock in companies involved in at least some way in the legal cannabis business." That includes legally registered, publicly traded companies in fields like agriculture, pharmaceuticals, hydroponic or tobacco companies, the firm says.
The Denver-based fund manager says the offering may also invest in REITs, "if the investment committee believes that it could be advantageous to the stockholders."
"The cannabis industry is a very young, fast evolving industry with possible increased exposure to rule changes, changes in laws, increasing regulations, increasing competition which may cause businesses to suddenly close or businesses to shrink as well as the possibility that a company currently operating legally may suddenly find itself exposed to illegal activities," according to the fund's prospectus, made public on Aug. 10.
Laws banning medical use of the drug have been overturned in 23 states and Washington, D.C., since 1996, according to the Office of National Drug Control Policy. State laws in Alaska, Colorado, Oregon and Washington State have been overturned to include the legalized sale and distribution of marijuana for adults 21 and older. Its use is still considered an offense under federal law.
With an expense ratio of 6.87%, and $657,785 in total assets under management, the fund reports a -3.60% year-to-date return, and a one-year return of -8.79%, according to Morningstar. Going back further — to the time before the fund changed its focus — it fared a bit better. It posted a 3.02% three-year return and 4.95% five-year return. These figures were reported on Aug. 16.
The American Growth Fund Series Two Class E is managed by Robert Fleck, an Investment Research Corporation employee as well as president and CEO of World Capital Advisors; and Timothy Taggart, president of American Growth Fund and the owner and president of Investment Research Corporation, according to the firm.
American Growth Fund could not be reached for comment. Morningstar and Investment Company Institute declined to comment.