Looking to invest in the cannabis space? Mike Philbrick, president of ReSolve Asset Management, says that since it’s still too early to pick the winners from the losers, go for broad exposure like that offered by the Horizons Marijuana Life Sciences Index ETF (Horizons Marijuana Life Sciences Index Quote, Chart TSX:HMMJ), which has delivered exceptional returns over the first quarter of the year.
“This is an industry that has the potential for massive growth [but] it will also have massive volatility and you don’t necessarily know who’s going to survive,” Philbrick told BNN Bloomberg on Tuesday. “I think that you want to play this sector via an ETF that has broad exposure and you want to edge in with large declines that will occur in this type of area, you want to be a buyer.”
Launched in 2017, HMMJ was the world’s first cannabis ETF and currently has $872 million under management. The fund attempts to track the North American Marijuana Index, a task that has been made difficult by HMMJ’s listing on the Toronto Stock Exchange, which forbids companies from having assets in violation of US federal law. The stipulation has kept HMMJ from adding any of the growing number of publicly-listed US Multi-State Operators (MSOs).
Recently, Horizons has made a couple of moves to get in on that US action, however. First, changes to US federal law concerning hemp have allowed Horizons to include a number of hemp-focused US companies such as Charlotte’s Web Holdings and AgraFlora Organics.
And second, Horizons is going ahead with a US Marijuana Index ETF, not on the TSX but on the NEO Exchange. Slated to begin trading tomorrow under the ticker HMUS, the ETF will include US MSOs such as Curaleaf Holdings, Cresco Labs and Acreage Holdings.
“HMUS will be the first index ETF solution to focus solely on identifying and investing directly in US marijuana and hemp companies. As the US continues to further liberalize its marijuana regulations we anticipate that more investors will be looking to invest in companies with significant business operations in the US market, and HMUS will provide a diversified and liquid way to gain that exposure in one ETF,” said Steve Hawkins, President and CEO of Horizons ETFs, in a press release on Monday.
So far in 2019, HMMJ’s share price has risen 39.5 per cent, a reflection of the early-year appetite for pot stocks. Philbrick says that even though valuations are high in the sector, they reflect the growth potential of an industry just barely out of the gate.
“It’s a new area and a new era … we might want to capture it with a small part of our portfolio, keeping in mind that those stocks are very expensive right now,” Philbrick says. “Generally speaking when you buy something expensive, the forward expected returns are lower, but in a domain like this where you have such massive potential for growth, you don’t often get to buy it cheap.”