If you believe that the nascent cannabis industry is ready to skyrocket, you now have the ability to put your money where your mouth is. The Toronto Stock Exchange on Wednesday began trading the world’s first marijuana exchange-traded fund, allowing investors to buy shares of a portfolio of marijuana-related stocks.
“Canada is the birthplace of ETFs and has been home to many firsts in the industry. The Horizons Medical Marijuana Life Sciences (HMMJ) ETF is another made-in-Canada ETF milestone, the world’s first marijuana ETF,” said Steve Hawkins, president and co-CEO of Horizons ETFs. “At Horizons, we take pride in our innovation, so we’re very happy that for the first time, investors will be able to access a low-cost, diversified portfolio of companies that are directly involved in the rapidly growing medical marijuana industry.”
For those not familiar with ETFs, think of it as an index fund. Here is how NASDAQ defines ETFs:
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.
In essence, investors can buy stock in the ETF, which removes the risk in investing in a specific company.
Cannabis sales in 2016 were estimated at $6.7 billion, a 25 percent increase year-over-year. As the industry matures, and the laws become more progressive, the market will skyrocket.
“The rapid growth of the medical marijuana industry, which includes the growth in the size of companies and the number of companies that are publicly listed on North American stock exchanges, has created enough market depth and liquidity to make launching an ETF with this unique theme possible,” Hawkins said in a press release. “It’s rare that investors get an opportunity to invest in what is essentially an entirely new sector of stocks.”
The HMMJ ETF will track a bucket of 14 stocks. The largest of the group include:
- Aurora Cannabis
- Insys Therapeutics
- Canopy Growth
- GW Pharmaceuticals