Part of cannabis and investing
Manulife Asset Management jacked up its holdings of CannTrust Holdings Inc. stock in the second quarter – just in time for the company’s surprise disclosure that it was growing cannabis without a licence.
Records filed with the U.S. Securities and Exchange Commission show that Manulife Asset Management more than tripled its position in the three months ended June 30, adding 3.34 million CannTrust shares. At the quarter’s end, the records show, Manulife Asset Management owned 4.87 million shares, or 3.44 per cent of the entire company.
On July 8, CannTrust said it had received a non-compliance order from Health Canada for growing thousands of kilograms of cannabis in unlicensed rooms in its greenhouse facility in Pelham, Ont., in late 2018 and early 2019. The company has halted sales, had product returned by retailers and faces a criminal investigation led by the Ontario Securities Commission. The stock closed on Monday at $2.60, down 60 per cent from June 30.
The steep drop has cut the value of Manulife Asset Management’s holding to less than $14-million from $32-million – small amounts, certainly, for a financial firm managing billions of dollars.
However, Manulife has stepped into CannTrust, and cannabis investing in general, to a greater degree than most Canadian institutional investors. While money-managing affiliates of Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal all sharply increased their CannTrust positions in the second quarter, their holdings numbered in the hundreds of thousands of shares, not millions.
The bulk of Manulife Asset Management’s cannabis shares seem to be held in the Manulife Dividend Income Plus Fund, which had $1.74-billion in assets under management on July 31.
At the end of 2018, the most recent comprehensive holdings disclosure, that fund held all of Manulife’s CannTrust and Hexo Corp. shares, the vast majority of its Aphria shares, and nearly half of its Canopy shares. (The quarterly filings with the SEC that call on money managers to disclose ownership of securities listed on U.S. exchanges do not require they identify the specific funds where they’re held.)
Manulife spokesman Sean Pasternak said, “We view our investments in the cannabis sector as providing an attractive revenue growth profile relative to our other holdings. To ensure we are prudently managing risk, we tend to generally limit our exposures to the cannabis sector to about 5 per cent or less of the overall portfolio.”
With 4.87 million shares and 3.44 per cent of CannTrust, Manulife Asset Management is the second-largest institutional investor in the company, after a U.S.-based provider of exchange-traded funds. No other institution owns more than 0.6 per cent of CannTrust at June 30.
Manulife Asset Management owned 3.6 million shares of Aphria Inc., or 1.43 per cent of the company, at June 30, making it the fourth-largest institutional shareholder. Its 2.7 million shares of Hexo give it just more than 1 per cent of the company, making it the third-largest institutional holder. Manulife Asset Management is the largest Canadian institutional holder in both companies.
Manulife Asset Management also owns positions of fewer than one million shares in Aurora Cannabis Inc., Canopy Growth Corp. and Cronos Group Inc. With the exception of Aurora, where Manulife Asset Management trimmed its position in the second quarter, all the cannabis positions grew by at least 18 per cent.
All of the Canadian cannabis companies that are in the S&P/TSX Composite – CannTrust, Aphria, Hexo, Aurora, Canopy and Cronos – list on U.S. exchanges and can be found in the quarterly SEC filings. The filings give no picture of institutional ownership of Canadian companies that haven’t achieved a cross-border listing.
None of the cannabis stocks pay dividends. But Manulife does not promise that the Dividend Income Plus Fund – called the Manulife Canadian Focused Fund until it was renamed April 6, 2018 – holds dividend payers.
Mr. Pasternak said the fund’s full-disclosure materials say its mandate is not limited to investing exclusively in dividend-paying companies, “although 40 per cent of our portfolio does pay a dividend. The ‘Plus’ portion of the fund name, in conjunction with full disclosure in the fund’s offering documents, communicates that this is not exclusively a dividend-paying strategy.”
With files from Clare O’Hara