New Cannabis ETFs Open the Door for Investors
February 8th, 2018
When looking to invest in the marijuana sector, attention must be paid to the individual stocks out there. That’s something that traders can do, or if they would like to spread out risk they can invest in what is called an exchange-traded fund, which is a marketable security that tracks a baskets of assets such as an index fund. ETFs are different than mutual funds in that an ETF typically trades like a stock on a stock exchange, so it is accessible to retail investors. According to Investopedia, “ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.
ETFs are great because instead of actively scouring for the top players in the sector, retail investors can instead buy “stock” in an ETF, which may be passively or actively managed. There are many ETFs on stock exchanges across North America. One of the most prominent is called the Spider (or SPDR), which tracks the Standard & Poors 500 Index. There are also sector-specific ETFs that track the oil sector, biotech, finance, and energy sectors. Now, ETFs are coming to the marijuana industry, and it looks like there is no turning back the clock: the time of marijuana industry ETFs is now.
The first and most prominent ETF for marijuana is Horizons Marijuana Life Sciences Index ETF. According to their website, the goal of the HMMJ ETF is to “replicate, to the extent possible, the performance of the North American Marijuana Index, net of assets.” The fund also seeks to provide exposure to other North American life sciences companies that are publicly-listed and have significant business activity with marijuana.
The ETF began trading on April 4, 2017, and currently sits at $20.59 CAD as of mid-day on January 31, 2018. The following holdings are included in the ETF: Aurora Cannabis Inc at 14.53%, Canopy Growth Corp at 13.69%, Aphria Inc at 10.94%, Medreleaf Corp at 8.56%, GW Pharma at 7.44%, Scotts Miracle-Gro at 6.26%, Cronos Group at 5.02%, Cannimed at 3.9%, Canntrust at 3.86%, and Insys Therapeutics at 3.21%. The management fee is 0.75%, plus applicable tax.
Now, three more ETFs are set to join the market, and it may just be the beginning of marijuana ETFs. The first one is called Evolve the Marijuana ETF, which will be listed as ticker symbol SEED on the Toronto Stock Exchange. The company filed a preliminary prospectus on January 12, 2018.
Evolve’s marijuana ETF is interesting in that it plans to invest in companies both in North America and global. SeekingAlpha is reporting that the Evolve ETF has the ability to “invest up to 10% of the fund in private companies,” which stands in contrast to the Horizons HMMJ ETF, which only invests in publicly listed companies. It’s management fee is set to 0.75%, similar to Horizons.
SA also predicts that some of the larger cannabis companies will be part of the Evolve ETF, including Canopy, aurora, MedReleaf, and Cronos Group. Be close to watch this one as there may be high volatility: Evolve gives its marijuana ETF a risk of HIGH, indicating we could se some wild things happen.
The second new marijuana ETF is actually being run by none other than Horizons again. However, this ETF is called the Junior Marijuana Growers Index ETF or HMJR for short, indicating that the basket of companies may include some of the small players that have lower market capitalization figures – it attempts to replicate the Solactive Junior Marijuana Growers Index. There are a couple of things to keep in mind with the HMJR ETF. First, this ETF is not run on the Toronto Stock Exchange, but rather the lesser known NEO exchange. Second, the management fee of this ETF is actually a bit higher than previous ETFs management fees, coming in at 0.85%.
The Globe and Mail is reporting that there is yet another ETF that is ready to hop on to the market. Redwood Asset Management, a subsidiary company of Purpose Investments, starts trading of their Marijuana Opportunities Fund on Thursday February 1, 2018. 12 different entities will be included in the fund, with some of the companies focused directly on the cannabis sector and others with a more minor stake in the cannabis game.
It is also being reported by the Globe and Mail that some of the larger players would be included in the fund, including Canopy Growth, Cannimed, and Aurora. It also includes some lesser known players including Village Farms International. What’s great about this ETF is that it will also be offered as a Mutual Fund. You’ll be subject to management fees of 0.75% for the ETF as well as 1.75% for the mutual fund.
Marijuana ETFs are here to stay. We know that because the HMMJ ETF greatly surpassed the in-flows of other, more broad market-tracking ETS, including the BMO S&P 500 Index and the iShares Core MSCI EAFE IMI Index, according to the Globe and Mail.
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