Evolve Launches Actively Managed US Centric Cannabis ETF

- April 17th, 2019

Investors are gaining another option at exposure to the US marijuana landscape with the debut of the Evolve US Marijuana ETF.

The race for marijuana funds focused exclusively on the US market escalated as Evolve Funds Group confirmed the public debut of its new exchange-traded fund (ETF) on Tuesday (April 16).

Called the Evolve US Marijuana ETF (NEO:USMJ), this new actively managed long-term fund launched on Wednesday (April 17) on the NEO Exchange.

“The cannabis opportunity in the US is similar to that of Canada a couple of years ago, but in many respects has the potential to be exponentially larger,” Raj Lala, president and CEO of Evolve, said in a press release.

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Lala added that, because of the difference in populations, companies operating in the US are generating more revenue than Canadian producers while trading with significantly smaller market caps.

According to Evolve, as of 10:25 a.m. EDT on Wednesday, USMJ was trading at a market price of C$20.36.

The new fund from Evolve will charge holders a 0.75 percent management fee.

In its announcement, the firm signaled active management as a key factor for its marijuana funds due to regulatory changes in jurisdictions and the continuing volatility in the space.

“USMJ may invest in equity securities of companies listed domestically and globally, and other companies, with business activities in the US recreational and/or medical marijuana industry,” Evolve indicated to shareholders.

A spokesperson for Evolve confirmed that Elliot Johnson, chief investment officer with Evolve ETFs, will serve as the portfolio manager for the fund.

Johnson told the Investing News Network (INN) that the market’s excitement with the US space is due to its size advantage over Canada and the potential for protection for the industry in the form of a number of legislation bills.

“We know how US companies tend to dominate globally … one would expect at some point [that] some of these US companies will become leaders,” Johnson told INN.

He explained that the potential for policy in the US to improve is due to the STATES Act and the Secure and Fair Enforcement Banking Act of 2019, otherwise known as the SAFE Banking Act.

The US cannabis market has piqued investors’ interest with the potential of a broader market and the fact that some companies trade at lower valuations compared to leading Canadian firms in the space.

In particular, multi-state operators, companies managing assets in legal cannabis jurisdictions across the US instead of only one state, are capturing the attention of investors, analysts and portfolio managers.

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While cannabis remains illegal at the federal level in the US, several states have moved forward with legalization efforts that even include adult-use permission.

Johnson also acts as the manager for the Evolve Marijuana Fund (TSX:SEED), which in March announced returns of 40.63 percent over a one-year period since its launch in February 2018.

Over a year-to-date basis, SEED had increased 33.99 percent at the close of the markets on Tuesday.

“Our portfolio construction and risk management processes make us well positioned to take advantage of the changes we expect in the coming year,” Johnson said in a press release.

The launch from Evolve follows the confirmation by fellow ETF operator Horizons ETFs Management (Canada) of the debut of its own US fund on Thursday (April 18).

The two new funds will list on the emerging NEO Exchange in Toronto, which does not restrict marijuana plays in the US market despite its illegality at the federal level.

According to the fact sheet for USMJ, the fund will count with a total of 39 holdings. Here is a list of top 10 holdings in terms of weight for the fund:

  • Curaleaf Holdings (CSE:CURA,OTCQX:CURLF)
  • Green Thumb Industries (CSE:GTII,OTCQX:GTBIF)
  • Cresco Labs (CSE:CL,OTCQX:CRLBF)
  • Canopy Growth (NYSE:CGC,TSX:WEED)
  • Harvest Health & Recreation (CSE:HARV,OTCQX:HRVSF)
  • Charlotte’s Web Holdings (CSE:CWEB,OTCQX:CWBHF)
  • Acreage Holdings (CSE:ACRG.U,OTCQX:ACRGF)
  • Trulieve Cannabis (CSE:TRUL,OTC Pink:TCNNF)
  • MedMen Enterprises (CSE:MMEN,OTCQX:MMNFF)
  • TerrAscend (CSE:TER,OTCQX:TRSSF)

A spokesperson from Evolve confirmed to INN that the inclusion of Canadian cannabis producer Canopy Growth into this new fund is due to its business activities in the US hemp space.

Thanks to the legalization of hemp and its derivatives, Canopy will be expanding its production plans for hemp in New York. The firm has even tapped the services of Martha Stewart to aid in the launch and creation of brands for these products.

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

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

Editorial Disclosure: Acreage Holdings is a client of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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