Canada is taking advantage of the time the United States is spending renegotiating its North American trade deal. The focus of Canada’s venture: a fund that invests in medical marijuana stocks. It has yet to prove lucrative due to it still being in its early stages, but that has not stopped potential investors from debating over its potential.
The Horizons Marijuana Life Sciences ETF (HMMJ) began selling on the Toronto Stock Exchange on April 5, and provides investors with methods that do not involve them assuming the risk of individual companies. Despite the ETF only holding 14 stocks, 10 of them are based in Canada. Due to the high level of development the medical marijuana industry has in the country, cannabis could seen be legalized for adults who reside within Canadian borders.
The majority of ETF’s stocks involve the production of cannabis with medicinal use in mind. However, Zynerba Pharmaceuticals and Insys Therapeutics are firms in the biotech industry that focus on developing synthetic THC.
Founder of 420 Investor and chartered financial analyst, Alan Brochstein stated on his website: “Several of the selections are odd. INSY, which is under heavy scrutiny from the government for its alleged marketing practices and is also restating its financials, and ZYNE are biotech companies engaged in the development of drugs derived synthetically and not from botanical cannabis. Rather than being ‘medical marijuana’ companies, their success may come at the detriment of the medical cannabis industry.”
CNBC investigated Insys last year, a company that develops a painkiller stronger than morphine, which led to the resignation of their former CEO.
“It’s a cannabis play buried in a large fertilizer play,” Brochstein declared, referring to ETF-held fertilizer company Scotts Miracle-Gro, which is worth a hefty $5 billion.
President and CEO of Horizons ETF Steve Hawkins declared that he holds companies in the biotech sector of the cannabis industry because he wants to have widespread access to every corner of the cannabis space. Any company that is involved with cannabis in any form must apply to be included in the North American Medical Marijuana Index,
As time goes on, more and more people are beginning to accept marijuana stocks as a viable form of investment. Compared to now, Brochstein described the stocks in 2013 as “the Wild West.” Despite being penny stocks, many of the businesses have shown they have long-term potential.
Each year, billions of dollars are spent on cannabis. In fact, sales in 2016 within the United States were expected to reach $6.7 billion. It is estimated that over $150 billion is spent across the globe each year on illicit purchases of marijuana. With more legalization comes better performance for these stocks. Vancouver’s Aurora Cannabis and Ontario’s Aphria are each up 15 percent, according to reports from Google Finance.
“Sales are being priced for post-legalization, which might only happen in 2019 or 2020,” said Brochstein. “These estimates are based on the production from places that don’t even exist yet. Capital needs to be put into productive capacity, but that productive capacity needs to scale up. It’ll be interesting to see how that plays out.”
Todd Rosenbluth, director of ETF, claims that people in this industry must always remember that anything can happen in the short term. There are projected ups and downs for the near future.
“It can’t just be an interesting concept. The narrower the investment theme, the more can go wrong if demand for the underlying securities doesn’t materialize,” said Rosenbluth.
Hawkins claimed the industry is high-risk, high-reward. The government has a ruling influence on the future of the space with its laws and regulations.
According to ETF, the stocks will benefit those who are looking to invest only a small amount of money. The more money that is invested, the more the fees begin to impact your money. “It can be expensive if you have a lot of money in it.”
Hawkins states that these types of investments are also best for people who are looking for long-term growth. “You don’t have to be a marijuana user to be able to want to invest in this,” he said. “It’s for people who can see the growth prospects of the industry.”
Brochstein, however, is more positive on his outlook: “The need for a stock vehicle is great. And the market has matured now to where it makes sense to have one.”
Hawkins has high hopes for the industry, comparing it to the growth of the Internet in the 90’s. “It’s a young industry, and it’s evolving daily. It has the growth that Internet companies once did.”
Regardless, for those who are looking to become involved, the future looks bright.