A proposed new marijuana ETF could be a boon to Canadian-listed marijuana companies with U.S. operations, Beacon Securities analyst Vahan Ajamian says.
Horizons ETFs Management (Canada) Inc. this week filed a preliminary prospectus to launch a new marijuana ETF called the Horizons Junior Marijuana Growers Index ETF, which would trade under the ticker symbol HJMR. The firm launched its first marijuana ETF, the Horizons Marijuana Life Sciences Index ETF (HMMJ), in April of last year.
Ajamian says where the ETF proposes to list could tell us a lot about its intentions.
“Critically, HMJR has applied to trade on the Aequitas NEO exchange,” he notes. “The main reason for this seems to be that “Constituent Issuers may currently, or in the future, derive some portion of their revenues from the medical and/or recreational cannabis industry in certain U.S. states where cannabis use has been legalized under state law (e.g. Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington), notwithstanding that the use, possession, sale, cultivation and transportation of cannabis remains illegal under U.S. federal law.”
In a research report to clients today, Ajamian identified stocks that could be positively affected by the launch of this ETF.
“While we are still at the preliminary prospectus stage, should it go forward as planned, share prices and liquidity of U.S. operators could be disproportionately impacted by the new buying power of an ETF. Examples of such stocks include CannaRoyalty (CSE:CRZ), iAnthus Capital Holdings (CSE:IAN), MPX Bioceutical (CSE:MPX), Marapharm Ventures (CSE:MDM), Friday Night (CSE:TGIF) and Sunniva (CSE:SNN). Smaller purely Canadian operators such as Delta 9 Cannabis (TSXV:NINE) could also benefit from the increased attention/liquidity. For reference, the top five holdings in HMMJ represent 59% of its assets – and its sixth and seventh largest holdings are not marijuana growers or retailers.”
The analyst offers some advice on how to play this development.
“In terms of potential timing, we point to the 42 days between when HMMJ filed its preliminary prospectus and when it started trading,” Ajamian says. “It reached its first $100MM in AUM within eight trading days. This would suggest that the next month would be a good time to start acquiring shares of U.S. operators and smaller Canadian cannabis companies.”