Emerald Health Could Benefit from Upcoming Cannabis ETF
Ryan Allway
April 4th, 2017
News, Top News
Exchange-traded funds (ETFs) have become extremely popular over the past decade as investors seek out easier ways to build and maintain a portfolio. At the same time, the cannabis industry has grown into a multi-billion dollar opportunity with an increasing number of public companies in the space. It’s only natural that a pure-play ETF would eventually come along and make it easier for investors to buy into the lucrative space.
In this article, we will take a look at Horizons ETFs Management (Canada) Inc.’s new ETF focused on the cannabis industry and what it means for Emerald Health Therapeutics Inc. (TSX-V: EMH) shareholders.
Cannabis Finally Gets an ETF
Exchange-traded funds (ETFs) have become tremendously popular over the past decade as investors seek out easier ways to build and maintain diversified portfolios. According to ETF.com, assets in ETFs grew 14% last year to $2.4 trillion. These trends are likely to continue as the asset class draws capital away from more expensive mutual funds while introducing new actively-managed funds like so-called smart beta and new sectors like cannabis.
On March 28, Horizons ETFs Management (Canada) Inc. announced that it filed its final prospectus to launch the Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ). The new ETF, set to begin trading on April 5, will become the first publicly-traded fund offering direct exposure to North American-listed stocks that are involved with medical marijuana bioengineering and production – a booming market in recent years.
“The medical marijuana industry is rapidly growing in North America as legislators allow or consider allowing more legal uses of marijuana and marijuana-related products, particularly medical marijuana usage,” said Horizons President and CEO Steve Hawkins. “HMMJ is a way for investors to directly access the medical marijuana and life sciences industry through a transparent, low-cost ETF that holds a diversified basket of companies.
The underlying North American Medical Marijuana Index is designed to be a liquid and investable index of equity securities of publicly-traded companies involved in the cannabis industry. Only stocks that meet minimum asset and liquidity thresholds are considered for inclusion in the index, which is rebalanced quarterly on a market capitalization basis and capped so that no single stock can exceed 10% of the weight of the index when rebalanced.
Implications for Emerald Health
Many investors have been hesitant to invest in the cannabis industry because the majority of companies are traded over-the-counter and it’s difficult to build and maintain a portfolio. With the launch of the Horizons ETF, investors have easy access to an instant diversified portfolio of cannabis companies that requires very little ongoing maintenance. This could open the door to billions of dollars in capital that has been waiting on the sidelines.
The assets drawn in by the newly minted ETF flow into the component companies that make up its portfolio, which could increase liquidity and drive prices higher (or at least to a fair valuation) in the near-term. These dynamics are positive for existing shareholders in these companies as it enables better trading prices when buying and selling, as well as more certainty that component companies are fairly valued relative to their peers.
The underlying North American Medical Marijuana Index includes 16 component companies, ranging from pharmaceutical companies like GW Pharmaceuticals plc (NASDAQ: GWPH) to hydroponics suppliers like Scotts Miracle-Gro (NYSE: SMG). Emerald Health Therapeutics Inc. is the seventh largest holding in the index with a roughly 6.6% allocation, as of April 3, 2017, which means that it would receive that percentage of any new investment capital.
Emerald Health is a Canadian Licensed Producer whose world-class management team and Board of Directors have carried out a combined $1+ billion in clinical trials and raise over $500 million in funding. The company secured federal funding to characterize cannabis strains from the Canadian National Research Counsel’s Industrial Research Assistance Program (“NRC-IRAP”) in 2015, and has since developed a product line with a high level of genetic and product diversity. Emerald also intends to conduct clinical trials of its own to demonstrate the utility of its broad product lines.
Looking Ahead
Horizons’ new cannabis-focused ETF is set to launch on April 5, which could be an important date for investors to mark on their calendar. While the ETF represents a compelling opportunity, investors may also want to take a look at components of the fund’s portfolio that could benefit from greater liquidity and more efficient price discovery. Emerald Health Therapeutics Inc. (TSX-V: EMH) could be worth a closer look given its 6.6% allocation.
For more information, visit the company’s website or CannabisFN’s company profile.
This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.
About Ryan Allway
Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.
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