Pot core drives fund's impressive November performance

Sub-advisor reflects on impact of election and explains why there are significant tailwinds for 2021

Pot core drives fund's impressive November performance

For investors navigating the current environment, it might just be that a mix of cannabis, pharmaceuticals and healthcare is a potent option.

It’s certainly been that way for the Ninepoint Alternative Health Fund, sub-advised by Faircourt Asset Management. With cannabis at its core, Faircourt’s CEO and president Charles Taerk believes 2020 has been the launchpad for the sector after it was declared an essential service in most jurisdictions, pushing demand fundamentals forward.

The fund, which also benefited from an increased interest in pharmaceuticals and healthcare, was up 35% at the end of November, with long-term growth of 21% (Class A) since its inception back in March 2017 (27% for Class F, which has an inception date of August, 2017).

“Even with the growth that we've achieved today, we see valuation opportunities and continued growth,” Taerk said. “We believe there are fundamental and structural tailwinds for the fund to provide superior risk adjusted returns with significant opportunities for growth in 2021.”

The CEO suggested that this is a great fund to get into if you have individual cannabis holdings and have done particularly well in the past month. “Now might be time to take some profits and buy this fund for diversification.”

The tailwinds can be separated into five factors.

1, Remote life
Taerk said: “This has been true since March and it continues today. Studies show that people are comfortable consuming cannabis at home whether you're a medical patient, or it's consumed for recreational purposes, it wasn't just pantry loading that people thought in March - there has been sustained growth demand across North America and it continues to today.”

2, Store growth
Finally, there is store growth in larger provinces in Canada, which had been the bottleneck that has challenged licensed producers. Ontario is now on a 40-plus store opening trajectory. “This is going to help with convenience and the distribution of regulated product while also reducing the reliance on the black market, because ultimately, that's what we want to eradicate,” Taerk added.

3, U.S. regulatory changes
This is a significant tail, with ballot initiatives at state level, as well as potential congressional action, all serving to open the regulated market.

4, The fight against COVID-19
Taerk said: “Pharmaceuticals are game-changers in the fight against Coronavirus. They're bringing renewed awareness of these companies, their innovation, their IP, and the global distribution of various medications and treatments.”

5, Hooray for healthcare
As part of the reopening of the economy, the fund expects an increased demand for health services, and has holdings that have that exposure.

For now, cannabis remains its core driver, with this part of the fund up 21%. Performance has been led by leading multi-state operators and some select Canadian producers that gained traction because of the U.S. election result and increased legalization across the country. Driving the Canadian companies was the belief that a Joe Biden administration means Federal legalization may be in the offing. Taerk said he does not believe that to be the case, however. 

Leading the charge in November was TerrAscend (up 66%), Green Thumb (up 32%) and Village Farms (up 144%). A cloud hanging over Canadian producers remains, however, with many still focused on cost-cutting, like Canopy, Tilray, Aurora and Hexo.

“You’ve got to have low-cost structures to generate positive cash flows and there are very few companies that we believe can compete effectively,” Taerk said.

He added: “Cannabis is our core. It gives us great leverage across North America. But we've also had some significant support from pharma and healthcare. The fund's weighting in pharma provided additional support as the companies in the portfolio announced successful stage-three trials for their COVID vaccine.

“In addition, the fund's positioning in health care, such as in United Health, which was up 10%, also provided additional growth with the incoming Biden administration positioning healthcare as an industry that can be reorganized to provide additional services to mainstream America. We see these tailwinds as being significant and will continue to provide a wind at our backs in 2021.”