Aside from looking into futures contracts, the firm wants to launch new leveraged and inverse options
Horizons ETFs has announced changes to its suite of marijuana-focused ETFs, including the listing of futures contracts on the Horizons Marijuana Life Sciences Index ETF ("HMMJ") and the filing of a preliminary prospectus to launch leveraged, inverse and inverse leveraged ETFs with exposure to Canadian-listed marijuana companies.
In a statement, the company said futures on units of HMMJ, designated with the SSF symbol SMJ, have begun trading on the Montreal Exchange. Futures contracts on HMMJ will be offered with quarterly expiration dates in January, March, June, and September, with the first offerings extending initially to a June 2019 expiration date.
"We view the formal availability of futures on HMMJ as recognition by the Canadian investor marketplace that HMMJ is the key benchmark for Marijuana investing in Canada," said Steve Hawkins, president and co-CEO of Horizons ETFs.
Horizons ETFs has also filed a preliminary prospectus for three new ETFs that provide leveraged, inverse and inverse leveraged exposure to Canadian-listed Marijuana companies as reflected by the Solactive Canadian Marijuana Companies Index. The new ETFs, subject to regulatory approval, will be launched on the TSX under the firm’s family of tactical BetaPro ETFs, and will include:
- The BetaPro Canadian Marijuana Companies 2x Daily Bull ETF (HMJU), which will seek daily results endeavouring to correspond to two times the daily performance of the Solactive Canadian Marijuana Companies Index;
- The BetaPro Canadian Marijuana Companies -2x Daily Bear ETF (HMJD), which will seek daily results endeavouring to correspond to two times the inverse of the daily performance of the index; and
- The BetaPro Canadian Marijuana Companies Inverse ETF (HMJI), which will seek daily results endeavouring to correspond to the inverse of the index’s daily performance.
All results sought by the new ETFs are assumed to be before fees, expenses, distributions, brokerage commissions, and other transaction costs.
“Given the underlying volatility of this sector, we believe there is demand from certain sophisticated Canadian investors to take on more risk using leveraged ETFs to attempt to generate potentially higher short-term returns – very much like they have done with gold mining stocks,” Hawkins said.
Horizons cautioned that existing market conditions are expected to create considerable counterparty hedging costs that will be indirectly borne by HMJI and HMJD investors. The charges are expected to be between 10% and 25% per annum of the aggregate notional exposure of HMJI or HMJD's forward documents, meaning that hedging costs incurred by a counterparty may be between 20% and 50% per annum of the net asset value of HMJD.
“Shorting Marijuana stocks in particular is an expensive and complex process. If used appropriately, inverse Marijuana ETFs could be a potentially more liquid and easier way for investors to get short exposure to Canadian-listed Marijuana stocks while limiting their risk to what they invested,” Hawkins said. “[T]hese ETFs certainly wouldn't eliminate many of the risks investors face when shorting Marijuana stocks, which includes being subject to the high cost of borrowing Marijuana stocks.”