The first marijuana exchange-traded fund, offered by Horizons ETFs, is set to be launched next week.
The Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ), which will incorporate 11 Canada-listed stocks and four from the US, will begin trading Tuesday on the TSX, according to the Financial Post
“There was lots of regulatory scrutiny,” said Horizons ETFs President and Co-CEO Steve Hawkins, explaining the firm’s difficulties in getting approval for the product to the Financial Post
. “[T]his was the most scrutinized fund that we’ve ever launched out of the hundred plus that we’ve done.”
Marijuana is seen as a controversial asset class, but Horizons thinks it’s also a very lucrative one. Getting the first-to-market advantage has historically been a good indicator of the success of sector-specific funds, according to Hawkins.
In pushing its debut next week, Horizons has gotten ahead of other firms with proposals for similar pot-oriented investment vehicles. In February, US-based ETF Managers Trust filed paperwork for an ETF focused on medical marijuana and hemp with regulators in their country.
News that the Canadian government may introduce legislation to legalize marijuana as early as next month is also fuelling initial investor interest in Horizons’ offering. “[I]t is extremely topical,” Hawkins said. “We’ve never received the feedback for any other product that we’ve launched like we have for this product.”
HMMJ will be invested only in legal marijuana businesses, Horizons clarified. The fund is listed only in Canada; since marijuana is still a Schedule I narcotic on the US federal government’s list, US bourses cannot list pure-play weed companies. With a management fee of 0.75%, it includes companies like Canopy Growth, Aphria, CanniMed Therapeutics, CannaRoyalty, and International Cannabis.
While it was only a matter of time before one of the numerous marijuana ETFs got launched, according to Jacob Capital Management Head of Research Khurram Malik, there aren’t enough large and liquid companies that funds can incorporate so they can look like a typical ETF.
“[T]here’s only so many you can put in there, so there will have to be a couple of other large names to round things out that are kind of weedy but not pure play,” Malik said, explaining that a diversification requirement has to be hit by having a certain number of different stocks.
The largest stock in HMMJ is Ohio-based, New York Stock Exchange-listed lawn care provider Scotts Miracle-Gro, which offers hydroponics, growing systems, and lights that can be used by the marijuana sector. Britain-based GW Pharmaceuticals, which is focused on developing cannabinoid-based medicine, is also in the fund.
The fund can be adapted to include more companies as legalization of medical and recreational marijuana spreads to more regions worldwide. It will be rebalanced quarterly following Solactive’s North American Medical Marijuana Index.
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