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One week after legalization, Canada’s major cannabis ETF has hit a rough patch, experiencing some of its largest daily outflows to date as the industry gets slammed by a broad-based sell-off.
As of Tuesday’s close, investors have pulled a net $40-million from the Horizons Marijuana Life Sciences Index ETF (HMMJ) over the five trading days since Canada legalized cannabis for recreational use, according to Bloomberg data. On legalization day, nearly $20-million was taken out of the fund, the third-largest daily net outflow since HMMJ started trading, followed by eight-digit outflows on Friday and Tuesday. The $34-million net outflow in October so far is nearing a record exodus seen in September.
The situation marks a reversal for HMMJ, which has been among Canada’s most popular equity ETFs since it launched in April of 2017, attracting hundreds of millions of dollars in cash. Those who got in early have been rewarded – the fund has surged more than 100 per cent since inception on a total-return basis – and some profit-taking may be going on.
But recent performance has noticeably slumped. The fund tumbled 11.6 per cent on Monday, its worst day to date, as several of the country’s largest licensed producers got ensnared in the sell-off. As a result, HMMJ’s total assets have plunged more than $300-million from a September peak to $834-million, as of midday Wednesday.
The cannabis sell-off comes as a growing number of skeptics voice concerns over the industry’s future. On Monday, ratings agency DBRS issued a warning about the financial strength of Canada’s cannabis companies, noting that “many will fail.” Two Fridays ago, Veritas Investment Research analyst Stuart Rolfe initiated coverage of four producers – Canopy Growth Corp., Aurora Cannabis Inc., Aphria Inc. and Cronos Group Inc. – with a “sell” rating on each, saying “the market still lacks perspective when it comes to the size, shape and sustainability of Canada’s proverbial pot of gold.” Mr. Rolfe remains the only analyst with a “sell” rating on each stock, according to Bloomberg.
Meanwhile, a different story has played out for a U.S.-listed competitor, the ETFGI Alternative Harvest ETF, which holds a load of Canadian producers. Despite a recent bout of losses, the fund has yet to experience a net outflow since legalization.
Matt Lundy