ETF providers are in a neck-in-neck race to offer the first exchange-traded fund in Canada that has total exposure to the U.S. marijuana industry.
On Friday, both Evolve Funds Group Inc. and Horizons ETFs Management (Canada) Inc. filed preliminary prospectuses with the Ontario Securities Commission to launch ETFs consisting of a basket of U.S. stocks entirely tied to the burgeoning cannabis sector south of the border. Although some funds listed on alternative exchanges now have a limited focus on the U.S. sector, none – until now – offers investors 100-per-cent exposure.
Horizons launched the world’s first cannabis-focused ETF – Horizons Marijuana Life Sciences Index ETF (ticker HMMJ) – in 2017, and gained a first-mover advantage with more than $950-million in assets quickly accumulated. Evolve entered the cannabis sector last year with one of Canada’s first actively managed marijuana funds, the Evolve Marijuana ETF (ticker SEED).
Both HMMJ and SEED are listed on the Toronto Stock Exchange, which bans companies with U.S. businesses that violate that country’s federal laws against cannabis, even if the enterprise is legal at the state level. As a result, neither fund can include several prominent cannabis companies with valuations topping $1-billion, such as Curaleaf Holdings Inc. and Green Thumb Industries Inc.
The new ETFs would, however, be able to tap the U.S. market through their listings on alternative stock exchanges in Canada. Evolve plans to list its new fund on the Neo Exchange Inc.; Horizons would not say which alternative exchange their new fund was destined for.
“The U.S. marijuana market is poised to become the largest in the world as recreational and medical cannabis becomes legal at state levels,” Elliot Johnson, chief investment officer at Evolve ETFs and portfolio manager of SEED, said in a statement. “The U.S. growth opportunity in cannabis is similar to the ground floor in Canada over a year ago."
For its new fund, Evolve plans to stick with an actively managed strategy to allow fund managers to more quickly take positions in companies than those that passively track an index. If approved, Evolve will launch the U.S. Marijuana ETF, with a management fee of 0.75 per cent. Under the ticker USMJ, the fund will provide investors a mix of equity securities of public issuers that are involved in the U.S. marijuana industry where state and local laws regulate and permit such activities.
“As we have seen over the past year with SEED, active management is more appropriate than tracking an index when investing in a developing sector driven by news and filled with entrepreneurial new businesses,” Mr. Johnson said.
Horizons filed to launch the Horizons US Marijuana Index ETF, with a management fee of 0.85 per cent. Under the ticker HMUS, it will seek to track the Horizons US Marijuana Companies Index – which provides exposure to the performance of a basket of North American publicly listed life-sciences companies that have significant exposure to the U.S. marijuana or hemp industries.
Horizons would not provide further comment.
With files from David Milstead and Mark Rendell