Cannabis ETFs — Should You Invest?

- March 28th, 2018

Cannabis stocks can be precarious, but what about cannabis ETFs? Here’s a look at which cannabis ETFs are available to investors right now.

Just last year, cannabis ETFs didn’t exist. Sure, there was speculation, but that’s it. Fast forward to today and cannabis ETFs have become a budding industry.

So, what cannabis ETFs are on the market and what are their holdings like? Currently, there are two major cannabis ETFs on the market in Canada, with more on the horizon.

Here, the Investing News Network takes a look at the two major cannabis ETFs and what they have to offer investors.

What are the cannabis ETFs in Canada?

The Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ;OTCMKTS:HMLSF) was the first marijuana ETF on the block, having officially launched on April 4, 2017. It is comprised of 10 different cannabis-related stocks.

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These include: Canopy Growth (TSX:WEED), Aurora Cannabis (TSX:ACB), Aphria (TSX:APH), MedReleaf (TSX:LEAF), Scotts Miracle-Gro (NYSE:SMG), GW Pharmaceuticals (NASDAQ:GWPH), Cronos Group (TSXV:MJN), Canntrust Holdings (CNSX:TRST), INSYS Therapeutics (NASDAQ:INSY) and Newstrike Resources (TSXV:HIP).

The Horizons ETF currently has net assets of $633 million and charges a management fee of 0.75 percent plus tax to its shareholders.

As part of the continued growth for this fund, Horizons ETFs Management will be rebalancing the ETF quarterly. In 2018, the first rebalancing of the year added 10 new stocks to the Horizons Marijuana Life Sciences Index, including: Abattis Bioceuticals (CSE:ATT), Beleave (CSE:BE), HIKU Brands (CSE:HIKU), Isodiol International (CSE:ISOL), National Access Cannabis (TSXV:NAC), Neptune Technologies and Bioressources (TSXV:NEPT), Nuuvera (TSXV:NUU), Tetra Bio-Pharma (TSXV:TBP), Terrascend (CSE:TER) and THC Biomed International (CSE:THC).

The Alternative Harvest ETF (NYSE:MJX) is more of an international affair as it currently tracks both Canadian and American cannabis companies, as well as several other assets from around the world. The ETF was officially incepted back in 2015; however, this is a bit of a misnomer because the fund was previously known as Tierra XP Latin America Real Estate ETF. As the name suggests, it was focused on real estate assets. Alternative was not a cannabis holdings ETF until late December 2017.

Alternative has a number of cannabis-related stocks. Its top 10 holdings include many of the same companies as Horizons: Cronos Group, Canopy Growth, Aurora, MedReleaf, Canntrust, GW Pharmaceuticals, Cannimed Therapeutics and INSYS. Plus it has the Supreme Cannabis Company (TSXV:FIRE) and Huabao International (HKEX:336).

It also holds roughly 20 other stocks in the tobacco and pharmaceutical industries. It’s also not limited to Canada- or US-based companies; in fact, companies from as far away as Denmark are included in the ETF. Therefore, it presents a distinct offering from Horizons. It’s also the first cannabis ETF to be sold in the US. Like Horizons, it also charges a management fee of 0.75 percent plus tax to its shareholders.

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Should you diversify with cannabis ETFs?

There are benefits on either side for cannabis ETFs. Legalities present the biggest hurdle when it comes to cannabis. That means keeping with Canadian and American stocks only via Horizons means vulnerability from just two government regulations, as opposed to several nations.

For example, an announcement that Attorney General Jeff Sessions would be rescinding non-interference marijuana policies has meant that cannabis companies with US assets could get shut down by federal officers at any time. This has, of course, affected cannabis stocks and made investors wary of marijuana stocks, particularly those with US assets. Therefore, the more countries involved, the greater chance that more announcements like these could come out and decimate stock values.

Then again, risk assessment is very individual. Diversifying with other well-established industries such as pharma and tobacco via Alternative might seem like a more stable choice.

How have cannabis ETFs performed?

Horizons has fared well since inception. Yes, it has had its share of ups and downs, but those peaks and valleys are much less pronounced than they have been for the individual companies the ETF represents.

Horizons, for example, opened at $10.25 in April and was sitting at $16.64 as of March 28, 2018. The full graph can be found here.

cannabis etf

Alternative has had a very different level of performance that cannot be compared because it only debuted its cannabis holdings at the end of December. See its chart below:

cannabis etf

As can be seen, the ETF shot up shortly after its cannabis debut. We’ll see in the coming months how stable the ETF is and how well it compares with Horizons. The full graph can be found here.

When it comes to the majority of cannabis stocks and ETFs, they seem to experience sometimes extreme swings in price in conjunction with legislative announcements, whether Canadian or American.

Outlook for cannabis ETFs

Evolve has plenty of other ETFs and decided to expand into the cannabis market when it filed a preliminary prospectus with Canadian securities regulators on January 12, 2018. Evolve has applied for the ticker “SEED,” and is pitching its product as the first actively managed cannabis ETF.

Rolling off the success with its first cannabis ETF, Horizons ETFs Management has filed a preliminary prospectus for a second fund, the Horizons Junior Marijuana Growers Index ETF (HJMR). This cannabis ETF differs in that it will include companies with market caps of $50 to $500 million and will have assets with both Canadian and US operations.

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“HMJR will give investors direct exposure to a growing group of Canadian and global marijuana cultivation and distribution companies,” Steve Hawkins, president and co-CEO of Horizons ETFs Management, said in the company’s announcementHMJR will ask for a payment through an annual management fee of 0.85 percent of the ETF’s value in the returns.

The general sentiment on cannabis investing is bullish, although there is a great deal of “buyer beware” out there. It’s been called a highly speculative market and even a green bubble by some. The great unknown is whether stocks will soar or sink post-legalization. Then there’s the question of what will happen when Big Pharma inevitably arrives. There is a great deal of speculation about which way it will pan out — truly only time will tell.

Why you might like to invest in cannabis ETFs

To put it bluntly, cannabis stocks have been known for their volatility. Investing in cannabis ETFs gives one an opportunity to invest in the sector, while enjoying broad exposure and hopefully lower risk.

Whether you would like to keep your holdings national, international, diversified or siloed, or with big caps or small caps, soon the choice will be yours for the picking.

And why you might choose not to

Cannabis analyst Alan Brochstein wrote in Forbes that he doesn’t believe cannabis ETFs are a buy yet. While Brochstein has a bit of a US-specific investor lens, he does bring up some interesting points.

He indicates the flaws in each ETF, which include lagged fund growth compared with investing in large LPs individually. When seen on a graph, it becomes apparent that the largest gains are being made with individual companies themselves. Brochstein cites the inclusion of lesser cannabis-related companies, such as Scotts Miracle-Grow in HMMJ, as a possible cause of the fund’s comparative lag in the space. 

Would you invest in a cannabis ETF? If so, which one? Let us know in the comments below.

This is an updated version of an article published by the Investing News Network earlier in 2018.

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

Securities Disclosure: I, Amanda Kay, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Beleave, HIKU Brands, Isodiol International and the Supreme Cannabis Company are clients of the Investing News Network. This article is not paid-for content. 

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10 responses to “Cannabis ETFs — Should You Invest?

  1. Hi……………….I am currently vested in HMLSF 400 sh. Even though the market in general has began to correct itself I have not bailed out. Rather I view it as a buying opportunity, and it becomes possible to cost average in total holdings. Yes the market breathes, it can inhale to 50% or better in one session, or it can exhale 100%or more in one session. Going long is the only logical answer.

  2. Hi……………….I am currently vested in HMLSF 400 sh. Even though the market in general has began to correct itself I have not bailed out. Rather I view it as a buying opportunity, and it becomes possible to cost average in total holdings. Yes the market breathes, it can inhale to 50% or better in one session, or it can exhale 100%or more in one session. Going long is the only logical answer.

  3. i own HMLSF & wouldn’t touch MJX with a ten-foot pole. they seem as though they are somewhat opportunists when it comes to the pot market. johnny-come-latelys just wanting to jump on the train. ymmv.

  4. i own HMLSF & wouldn’t touch MJX with a ten-foot pole. they seem as though they are somewhat opportunists when it comes to the pot market. johnny-come-latelys just wanting to jump on the train. ymmv.

  5. If I am an individual investor in ETF, how would the company charge management fee of .75 plus tax? Can you please explain before I will invest….thank you

  6. If I am an individual investor in ETF, how would the company charge management fee of .75 plus tax? Can you please explain before I will invest….thank you

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