The manager of two cannabis-centric Canadian exchange-traded funds (ETFs) added 18 new cannabis stocks into the two indexes.

On Wednesday (September 26), Horizons ETFs Management completed a quarterly rebalance of the holdings in its two cannabis ETFs— the Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) and the Horizons Emerging Marijuana Growers Index ETF (NEO:HMJR).


The Horizons Marijuana Life Sciences Index ETF now holds close to 50 cannabis stocks, while the other index carries 38 stocks.

 

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Cannabis ETFs offer investors a chance to gain a measured exposure into the sector through variety of companies as opposed to picking individual stocks. With the growth of the overall cannabis sector, these offerings have increased as well.

Steve Hawkins, president and CEO of Horizons ETFs, said these rebalances come at a “significant time” for the industry as legalization of recreational cannabis in Canada is scheduled for October 17.

“With recreational sales starting soon, investors will get a better idea of what companies are poised to become leaders in the recreational cannabis space and are able to generate real sales,” Hawkins said in the company’s press release.

The ETF management company has made HMMJ its premier offering while its second cannabis ETF, which launched in February, is solely focussed on smaller market cap North American companies.

“As they grow, these budding marijuana companies have the opportunity to graduate into HMMJ’s index, allowing investors to participate in the full growth cycle of these businesses through our two marijuana based ETFs,” Hawkins explained.

Here’s a list of the stocks HMJR added:

 

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The rise of HMMJ is related to the growth of the holdings it has. The index’s top weighed holdings as of Tuesday (September 25) were: Aurora Cannabis (TSX:ACB), Canopy Growth (NYSE:CGC,TSX:WEED), Aphria (TSX:APH) and GW Pharmaceuticals (NASDAQ:GWPH).

The three Canadian producers have a combined market cap of over C$32 billion, while the pharmaceutical company has raised its profile after obtaining a critical approval in the US for a cannabidiol-based (CBD) medicine.

Here’s all the stocks added to the holdings of HMMJ:

Tilray’s inclusion should add even more value to the index as the Canadian company has enjoyed a substantial rush in the public markets for the past two months.

Investor takeaway

These scheduled quarterly rebalances for the two ETFs offer investors a chance to see which companies have gained the attention from the market and a chance to gain exposure into emerging cannabis industry.

Both HMMJ and HMJR have taken the ups and downs of the cannabis sector volatility but have seen gains so far in 2018. HMMJ raised in value 16.65 percent, over a year-to-date period. As the markets closed on Wednesday’s trading session, HMMJ reached a price of C$24.35.

Since its launch, HMJR has seen an uptick in value thanks to the growth of its holdings. Despite trading on the lesser known Aequitas NEO Exchange, as of 2:30 p.m. EST on Wednesday the holds a price of C$9.27. HMJR has seen a 52-week high price of C$10.48.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Editor’s Note: The headline of this article was changed since it incorrectly stated 17 cannabis stocks were added to the Horizons ETFs.

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Ascent Industries, Chemisis International, James E. Wagner Cultivation, Khiron Life Sciences, Maple Leaf Green World, GTEC Holdings, FSD Pharma and INDIVA are clients of the Investing News Network. This article is not paid-for content.

 

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

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