Shares of marijuana companies have soared since late last month after a U.S. health agency's proposal to reclassify it as a lower-risk substance boosted expectations of legalization at the federal level.

"We do not believe a Congress this politically divided will meaningfully act on cannabis at the federal level," said Christian H. Cooper, the fund's portfolio manager, in a note.

"However, we do believe a regulatory move to a Schedule III status meaningfully changes the trajectory for this business in the United States without Congressional action."

Cannabis ETFs such as the AdvisorShares Pure US Cannabis and the smaller Roundhill Cannabis ETF have jumped more than 25% each so far this month.

"The gains for these thematic ETFs could persist," said Todd Rosenbluth, head of research at VettaFi.

"However, this is a relatively crowded segment with ETFs from AdvisorShares, Amplify, Global X, Roundhill among others offering products with longer records."

Also on investors' radar is the SAFE Banking Act, crucial legislation that would make it easier for the cannabis industry to access banking services.

"The market is getting hopeful again but the real catalyst will be whether or not they get safe banking and whether or not it is declassified," said Thomas Hayes, chairman at Great Hill Capital.

The Subversive Cannabis ETF edged lower in thin early trading.

The actively managed fund will invest at least 80% of its net assets in companies that are directly involved in the global cannabis sector, Subversive Capital said in a statement.

Green Thumb Industries, Verano Holdings and Curaleaf Holdings are among the top holdings of the new ETF, as of Tuesday, according to Subversive Capital's website.

The fund has a 0.75% management fee.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Sharon Singleton)

By Bansari Mayur Kamdar