To invest in the space, investors really have only two options: invest
directly in the underlying companies or invest in a fund. In the ETF space,
there are three options, of which the
Horizons Marijuana Life Sciences ETF (TSX: HMMJ)
is the most established, having debuted in 2017.
The ETF invests in companies involved in the legal aspects of the marijuana
industry, including those involved in medical research, growers, and other
Some of the top holdings include medical marijuana companies
Aurora Cannabis (TSX: ACB),
Canopy Growth (TSX; WEED), and
Aphiria Inc. (TSX: APHA). Ancillary business holdings include fertilizer company
Scotts Miracle-Gro Co. (NYSE: SMG).
After a strong start since inception in April 2017, the fund reached a
52-week high of $27 last October, up about 170% since inception. However,
it’s been a bumpy ride since then with the fund dropping 40% in the three
months ending Dec. 31. For 2018 overall, the fund suffered a loss of about
There is no doubt the market for marijuana will grow substantially, with
conservative estimates for the size of the total market at just shy of $6
billion in annual sales. However, it’s too early to rely on these
estimates. The market is crowded, consolidation is underway, and valuation
levels have reflected extreme optimism.
For example, the recent price-to-forward earnings ratio of Canopy Growth,
the second-largest holding in the ETF, is -400 times (meaning the company
is trading on huge expectations of future earnings while currently posting
a loss). And it’s not unique. Clearly these valuation levels are
I don’t currently view this sector as an “investment,” but rather as a
trade or speculation. However, most investors will want to steer clear
until the dust settles and more reasonable fundamentals are demonstrated.
For those looking for a one-ticket diversified portfolio in this sector,
the Horizons ETF is a good option. But again, with the current risk profile
of the sector, it is clearly not something I’d recommend for everyone.
Horizons Marijuana Life Sciences ETF
Horizons ETF Management
Small Cap Growth
Horizons ETF Management
Dave Paterson, CFA, is the Director of Research, Investment Funds for
D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due
diligence on a variety of investment products. He is also the publisher
Dave Paterson’s Top Funds Report,
offering regular commentary and in-depth analysis of Canada’s top
investment funds. He uses a unique analytical approach to identify
funds with strong, risk-adjusted returns, and regularly publishes his
insights and analyses in Fund Library.
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