Two months ago, the Toronto Stock Exchange announced it would begin trading the world’s first marijuana exchange-traded fund, allowing investors to buy shares of a portfolio of marijuana-related stocks. News of the Horizons Marijuana Life Sciences ETF made headlines around the world and the first marijuana stock was heralded as great cannabis investment.
Within a week of its initial offering priced at $10, the shares — using stock ticker HMMJ — soared 18 percent and cannabis industry insiders took this as a sure sign of the market’s maturity and growth potential.
Since then, the shares have fell back down to earth, with the price hovering lately somewhere near $8.50, which is roughly a 16 percent drop from the open price.
What is an EMT? Here is how NASDAQ defines it:
Exchange Traded Funds are funds that track indexes like the NASDAQ-100 Index, S&P 500, Dow Jones, etc. When you buy shares of an ETF, you are buying shares of a portfolio that tracks the yield and return of its native index. The main difference between ETFs and other types of index funds is that ETFs don’t try to outperform their corresponding index, but simply replicate its performance. They don’t try to beat the market, they try to be the market. ETFs have been around since the early 1980s, but they’ve come into their own within the past 10 years.
So essentially, investors own more than a dozen cannabis stocks through a single investment fund, removing the risk of a bet on one company.
Will there be an industry rebound? Has HMMJ hit bottom?
As for the industry as a whole, Marijuana Business Daily‘s “Marijuana Business Factbook 2017” estimates legal cannabis sales in the U.S. to hit between $5 and 6 billion this year and more than $17 billion by 2021. Cowen & Cowen, an investment firm, recently published a forecast predicting $50 in legal sales by 2026. With that kind of growth, why is the stock index struggling?
Three words: Volatility, uncertainty and consolidation. Although more and more states in the U.S. are opening up the market and Canada will have coast-to-coast legalization next year, the rules and regulations are in flux. Investors want stability and until the governmental bodies provide a solid foundation, money will go elsewhere. And since many of the current businesses are immature, there is no record of success to track.
HMMJ has been hit by the same uncertainty. Earlier this month, Horizons Marijuana Life Sciences Index ETF announced that it plans to invest in “a slightly broader and diversified portfolio of marijuana-focused companies beyond those focused solely in the medical marijuana industry.”
According to Steve Hawkins, President and Co-CEO of Horizons ETFs:
“The North American marijuana industry continues to evolve rapidly from a regulatory and issuer perspective. We want to ensure that HMMJ has the flexibility to own a diversified portfolio of marijuana industry stocks so it can meet its investment objectives. We have also changed the name of HMMJ to reflect that the ETF will become more than just a medical marijuana ETF, as it will have the potential to invest in a range of recreational cannabis-focused opportunities as applicable laws evolve in both Canada and the United States.“