We continue to recommend investors be wary of marijuana stocks. But as Canada prepares to legalize recreational cannabis on October 17, 2018, we receive more requests for our analysis on cannabis-related stocks and ETFs.
It remains difficult to say which marijuana growers will prosper. More certain is that overall demand for marijuana will continue to expand. One way for investors to cut risk is to look for firms that will benefit from industry growth no matter which producers thrive.
These two ETFs that aim to benefit from the potential profitability of the cannabis industry.
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HORIZONS MARIJUANA LIFE SCIENCES ETF $18 (Toronto symbol HMMJ; TSINetwork ETF Rating: Aggressive; Market cap: $834.3 million) invests in North American firms that are legally involved in the cannabis industry.
The fund tracks the North American Marijuana Index. Canadian companies make up 80% of the portfolio, the U.S. 12%, and the U.K. 8%. The ETF invests in cannabis growers and cultivators, as well as bio-pharmaceutical companies and support firms such as lighting technology and fertilizer companies.
Despite its 40 different stocks, the ETF’s holdings are still highly concentrated in growers: four among those make up 43.0% of its assets.
The ETF’s top five holdings are Aurora Cannabis (Canada, 11.8%), Canopy Growth (Canada, 11.5%), Medreleaf (Canada, 10.0%), GW Pharmaceuticals (U.K., 9.7%), and Aphria (Canada, 9.1%). Scotts Miracle-Gro (U.S., 8.7%), Cronos Group (Canada, 5.1%), The Green Organic Dutchman Holdings (Canada, 4.0%), Hydropothecary (Canada, 3.1%) and CannTrust Holdings (Canada, 3.1%) complete the top 10. Another holding, Innovative Industrial Properties (U.S.), leases warehouse space to growers.
The ETF launched in April 2017. It charges a relatively high MER of 0.75%, but has a reasonable size. An average $7.4 million in units trade daily and provide ample liquidity.
The fund has gained 102.1% over the last year, while the broad-based S&P/TSX 300 rose 6.0%. Given the 2018 forecast earnings for the stocks it holds, the ETF’s p/e is 58.1.
The Horizons Marijuana Life Sciences ETF is okay to hold only for highly aggressive investors willing to accept the risks of investing in cannabis and cannabis-related stocks.
Recommendation in Best ETFS for Canadian Investors: The Horizons Marijuana Life Sciences ETF is okay to hold only for highly aggressive investors willing to accept the risks of investing in cannabis and cannabis-related stocks.
ETFs: Largest part of this ETF’s assets held in Canada and the U.S.
ETFMG ALTERNATIVE HARVEST ETF $29 (New York symbol MJ; TSINetwork ETF Rating: Aggressive; Market cap: $372.5 million) invests in companies that are engaged in the legal production and sale of cannabis for medical or recreational purposes.
The fund invests globally, although the bulk of its assets are held in Canada (62%) and the U.S. (21%). Industry exposure is mainly to Pharmaceuticals (68.3%), Tobacco (14.9%) and Biotechnology (7.6%).
The ETF holds 38 stocks, with 29.2% of the assets allocated to the top five. They are The Green Organic Dutchman Holdings (Canada, 7.4%), Canopy Growth (Canada, 5.6%), Aurora Cannabis (Canada, 5.5%), Cronos Group (Canada, 5.5%) and MedReleaf (Canada, 5.2%). Other holdings include Swedish Match (tobacco products), British American Tobacco, Philip Morris International and Japan Tobacco.
The ETF started up in December 2015. Its MER is a high 0.75% and the fund’s size and its average $9.4 million in units traded daily provide reasonable liquidity.
The fund pays a fluctuating dividend. Over the last year, on payments amounted to $0.76. That makes for a 2.6% yield. The units have gained 2.3% over the last 12 months, compared to a gain of 11.5% for the S&P 500 Index and 6.0% for the S&P/TSX 300.
Recommendation in Best ETFs for Canadian Investors: The ETFMG Alternative Harvest ETF is okay to hold only for highly aggressive investors willing to accept the risks of investing in cannabis and cannabis-related stocks.
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