A little over a year ago, an obscure Latin American real estate ETF no one cared about got a second lease on life. Its sponsor, ETFMG, changed the fund's name to ETFMG Alternative Harvest ETF (NYSEMKT:MJ), topped it off with an easy-to-remember ticker (MJ), and the first true U.S.-traded marijuana ETF was born.

The move from Latin American real estate to marijuana brought the ETF almost overnight success. The day before its makeover, fewer than 25,000 shares traded hands. Roughly one week later, on Jan. 3, 2018, 6 million shares traded hands. As of this week, the ETF reached another milestone, eclipsing $1 billion of assets for the first time.

Marijuana leaf sitting on a $1 bill.

Image source: Getty Images.

What it owns

Sector ETFs are notorious for being extremely concentrated, putting the bulk of their investors' cash in just a handful of stocks. ETFMG Alternative Harvest is no exception. The top three holdings make up a third of its portfolio. The top five constitute nearly half of its portfolio.

Holdings

Ticker

Percentage of Fund Assets

Cronos Group

(NASDAQ: CRON)(TSX: CRON)

19.3%

Canopy Growth

(NYSE: CGC)(TSX: WEED)

8.7%

Aurora Cannabis

(NYSE: ACB)(TSX: ACB)

7.7%

Tilray

(NASDAQ: TLRY)

5.4%

Organigram Holdings

(NASDAQOTH: OGRMF)

4.4%

Total of top 5 holdings

N/A

45.5%

Data source: ETFMG as of Feb. 4, 2019.

Though the ETF tracks an index, making it technically an index fund for marijuana stocks, it may as well be actively managed. The ETF tracks the Prime Alternative Harvest Index, which uses a "proprietary methodology" to select stocks. The company behind the index says only that it uses a "modified market cap" approach to weighting stocks in its portfolio, and the ETF's prospectus isn't much help, either. In short, the guts of how the ETF and the underlying index select stocks are simply hidden from view.

What's the case for this marijuana ETF?

ETFMG Alternative Harvest ETF will give you "quick and dirty" exposure to companies that have varying levels of exposure to the marijuana industry. Its largest holdings are, without question, marijuana pure plays, or very close to it.

But go down the list and you'll find tobacco companies including Philip Morris International, Altria Group, and British American Tobacco. You'll also find companies with few real links to marijuana or smoking products, such as Scotts Miracle-Gro. Though small at less than 1.5% of assets each, stocks with modest ties to marijuana only dilute the usefulness of this ETF as an industry tracker.

Check out the latest earnings call transcripts for companies we cover.

Its best attribute may be that it's the only game in town...for now. Unless you want to route your trades over international borders, and potentially incur higher commissions and more currency fluctuation risk, ETFMG Alternative Harvest ETF is the only way to go. With an annual expense ratio of 0.75% of assets, it fills a niche as a cost-effective way for small investors to diversify without buying marijuana stocks one by one.