Last month, news surrounding the legalization of marijuana inspired an investor rush into the sector. Benefitting from the trend was Horizons Medical Marijuana Life Sciences ETF (HMMJ), the world’s first marijuana ETF.
But now investors in the ETF are losing money. A little more than a month after its April 5 launch on the TSX, the fund has suffered losses, with shares falling 6% as of May 12 according to Bloomberg Intelligence analyst Eric Balchunas.
Despite that, the ETF has been able to attract US$80 million in its first month of trading. “The ETF is already in the top 25% of Canada’s ETFs,” Balchunas said. He noted that flows into the ETF reflected a lot of smaller purchases, indicating high demand among self-directed investors.
The cannabis industry at large is also seeing rapid growth. North America’s legal weed industry grew 34% between 2015 and 2016, with analysts at cannabis research firm ArcView saying that the industry will grow well into the future, hitting US$22.6 billion in 2021.
“Very few consumer industry categories reach US$5 billion in annual spending and then post anything like 25% compound annual growth across the following five years,” the report said.
One of the largest holdings that HMMJ has is in Canopy Growth, which reportedly became Canada’s first billion-dollar pot company in April. Since then, its stock has gone down by around 30%.
Two other marijuana companies that the fund is invested in, Aurora Cannabis and Aphria, have done better. Aurora cited revenues of $5.2 million in its latest quarterly report, a year-over-year gain of around 33%, though it was still lower than the consensus estimate of $7.4 million. In its own recent quarterly report, Aphria had revenue of around $5.1 million and a gross profit of about $3.5 million.
The losses suffered by the marijuana ETF may not be surprising considering the high valuations the sector enjoyed recently. The question now is for how much longer the fund’s investors have to hold on before it starts to rebound.
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