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The day Canada legalized marijuana, the Horizons Marijuana Life Sciences Index ETF was the world’s first and largest investment fund in cannabis stocks. Exactly one year later, it is far from the biggest, and its returns are the worst.

The fund, known by its ticker HMMJ, has lost more than 56 per cent of its value in the past 12 months, according to figures from Morningstar Direct, while other cannabis funds have shed one-third to almost half of their value. Once one of the hottest investments in Canada, cannabis stocks and the funds that specialize in investing in them have had a rocky year since Canada legalized retail sales.

Within two days of legalization on Oct. 17, 2018, HMMJ lost its crown as the biggest cannabis exchange-traded fund to a U.S.-based fund, ETFMG Alternative Harvest (MJ). With investors pumping cash into Alternative Harvest to chase the promise of cannabis success, the U.S. fund now has US$800-million in assets, a lead of nearly US$375-million over HMMJ.

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poor performance

On the anniversary of Canada legalizing marijuana, exchange traded funds that invest in the industry have seen lackluster results in both assets under management and total returns.

1-year returns

(10-16-18 to

10-15-19, USD)

Assets under

management*

ETF fund

Horizons Marijuana

Life Sciences ETF

(HMMJ-TSX)

-56.10%

$428

ETFMG Alternative

Harvest ETF

(MJ-NYSE)

-51.75%

$801

Evolve

Marijuana ETF

(SEED-TSX)

-38.91%

$6.1

Purpose Marijuana

Opportunities ETF

(MJJ-NEO)

-37.83%

$29.9

*As of Sept. 30, in millions of USD

john sopinski/THE GLOBE AND MAIL,

Souce: morningstar direct

poor performance

On the anniversary of Canada legalizing marijuana, exchange traded funds that invest in the industry have seen lackluster results in both assets under management and total returns.

1-year returns

(10-16-18 to

10-15-19, USD)

Assets under

management*

ETF fund

Horizons Marijuana

Life Sciences ETF

(HMMJ-TSX)

-56.10%

$428

ETFMG Alternative

Harvest ETF

(MJ-NYSE)

-51.75%

$801

Evolve

Marijuana ETF

(SEED-TSX)

-38.91%

$6.1

Purpose Marijuana

Opportunities ETF

(MJJ-NEO)

-37.83%

$29.9

*As of Sept. 30, in millions of USD

john sopinski/THE GLOBE AND MAIL,

Souce: morningstar direct

poor performance

On the anniversary of Canada legalizing marijuana, exchange traded funds that invest in the industry have seen lackluster results in both assets under management and total returns.

Assets under

management*

One-year returns

(Oct. 16, 2018 to Oct. 15, 2019, USD)

ETF fund

Horizons Marijuana

Life Sciences ETF

(HMMJ-TSX)

-56.10%

$428

ETFMG Alternative

Harvest ETF

(MJ-NYSE)

-51.75%

$801

Evolve

Marijuana ETF

(SEED-TSX)

-38.91%

$6.1

Purpose Marijuana

Opportunities ETF

(MJJ-NEO)

-37.83%

$29.9

*As of Sept. 30, in millions of USD

john sopinski/THE GLOBE AND MAIL, Souce: morningstar direct

Horizons chief executive Steve Hawkins says his U.S. competitor’s quick success is “100 per cent the result” of a U.S. investor marketplace that is more than 10 times the size of Canada’s. “But their assets are not 10 times mine from an ETF perspective,” he adds.

You could call the investor enthusiasm for Canadian cannabis stocks in 2017 and 2018 a mania. Companies with little revenue and no profits in sight had valuations of hundreds of millions, if not billions, of dollars. The stocks, as measured by the Solactive North American Marijuana Index, hit an historic high on Oct. 15, 2018, two days before Canadian legalization.

Nearly everything since then has been a letdown for investors. There were supply shortages and bungled roll-outs of the provincial retail networks. The typical marijuana stock has lost half its value in the past year.

ETFs, which typically hold a basket of stocks, offered investors a way to get into the cannabis sector without having to predict one or two winners. And Horizons was in the catbird seat: Started in April, 2017, HMMJ had an eight-month head start on any other cannabis fund. In the six months from March 31 to Sept. 30 in 2018, HMMJ returned 45 per cent.

In the year since legalization, however, things have turned south. HMMJ’s 56-per-cent decline in the 12 months through Oct. 15 make it the worst performer of the major cannabis funds that have operated over that time frame, according to Morningstar. Alternative Harvest, despite its huge inflows, lost nearly 52 per cent. The “best” ETFs in the space for that period, the Purpose Marijuana Opportunities ETF (MJJ) and Evolve Marijuana ETF (SEED), lost about 38 per cent of their value.

“Investors have more choices now, so where they may have originally invested in HMMJ, they may now be investing in other U.S. ETFs simply because it’s easier to purchase funds in the U.S.,” Mr. Hawkins says.

While the launch of U.S. cannabis ETFs has not caused existing U.S. investors to leave HMMJ, Mr. Hawkins says it has created a loss of opportunity for new sales south of the border.

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But HMMJ has also been stymied by performance issues. HMMJ follows an index of marijuana stocks crafted by Solactive, a German provider. In 2018, it missed out on some hot new cannabis initial public offerings, such as Tilray Inc., which went up more than 1,600 per cent in its first two months, because Solactive only made additions and changes on a quarterly basis. (Mr. Hawkins says Solactive has since changed the rule on IPOs.)

Because HMMJ is listed on the Toronto Stock Exchange, it hews to TSX rules and does not hold U.S. companies that operate in violation of that country’s federal cannabis laws.

And passively following an index means that HMMJ is nearly fully invested in pot stocks, and holds them essentially in proportion to their market value. But other funds that buy such stocks are actively managed and have more freedom to pick and choose.

Purpose’s MJJ had nearly 50 per cent of its portfolio in cash in October, 2018, a result of a three-month period of selling Canadian cannabis stocks on the theory of “sell the news” of legalization, says Purpose’s chief investment officer Greg Taylor. “Once the U.S. media is up here sniffing around in the sector, it’s usually a time to start selling,” he says.

However, he also believes the big opportunity lies south of the Canadian border: Today, his fund’s biggest holding is Curaleaf Holdings Inc., a Massachusetts company that operates in 12 U.S. states.

While Alternative Harvest is also based on the Prime Alternative Harvest Index, which has chosen to include tobacco companies and their suppliers because they are “likely to be influenced” by the rise of cannabis. Roughly 20 per cent of the index is tobacco.

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“It definitely does mitigate some of the volatility and also adds some extra return from dividend performance," says Jason Wilson, president of Toronto’s Budding Equity Asset Management Inc. and a partner in Alternative Harvest. "And I think people are more and more understanding that investing in very early stage small-cap licensed producers with absolutely no business history is speculative, and a lot of them will not make it.”

Cannabis stock performance

Data set includes all cannabis stocks that were in either the Solactive North American Marijuana or the Solactive Emerging Marijuana Growers Index in 2019 and that have a full one-year return from Oct. 15, 2018 (peak of the larger Solactive index) to Oct. 15, 2019. Minimum market cap for inclusion in the Emerging index is $50M CAD.

Company NameTickerMarket Cap ($-mil)52-Week High Date 52-Week High Price ($) % Change - Dividend Adj. Day Close Price [10/15/2018-10/15/2019]
Innovative Industrial Properties, Inc. IIPR-N 1,167.3 07/11/2019 182.47 86.7
MediPharm Labs Corp. LABS-T 550.0 05/14/2019 7.39 79.1
Body and Mind Inc. BMMJ-OTCPK 134.3 04/24/2019 3.64 75.6
Valens GroWorks Corp. VGW-X 405.3 04/30/2019 4.9 65.7
The Scotts Miracle-Gro Company SMG-N 7,416.4 07/31/2019 150.66 42.8
EnWave Corporation ENW-X 221.7 06/21/2019 2.66 35.1
Village Farms International, Inc. VFF-T 458.2 03/22/2019 24.25 24.2
Althea Group Holdings Limited AGH-ASX 133.2 07/25/2019 1.32 22.1
Elixinol Global Limited EXL-ASX 266.8 04/08/2019 5.63 19.3
Zynerba Pharmaceuticals, Inc. ZYNE-Q 242.5 05/17/2019 22.17 10.2
Charlotte's Web Holdings, Inc. CWEB-T 1,769.0 04/04/2019 33.77 8.04
Flower One Holdings Inc. FONE-CN 250.8 04/23/2019 3.75 (11.5)
Planet 13 Holdings Inc. PLTH-CN 302.0 04/18/2019 3.6 (15.0)
GW Pharmaceuticals plc GWPH-Q 4,906.7 05/07/2019 264.04 (16.0)
Heritage Cannabis Holdings Corp. CANN-CN 125.5 04/01/2019 0.72 (20.9)
Neptune Wellness Solutions Inc. NEPT-T 425.4 07/22/2019 8.6 (21.9)
Benchmark Botanics Inc. BBT-CN 70.2 05/15/2019 1.2 (22.6)
Origin House OH-CN 463.6 04/30/2019 13.1 (22.7)
THC Global Group Limited THC-ASX 46.3 10/17/2018 0.611 (26.4)
48North Cannabis Corp. NRTH-X 87.2 03/11/2019 1.69 (27.1)
Cronos Group Inc. CRON-T 3,697.7 02/04/2019 32.95 (27.7)
22nd Century Group, Inc. XXII-A 336.8 12/04/2018 4.11 (28.5)
Trulieve Cannabis Corp. TRUL-CN 1,503.0 04/04/2019 21.65 (29.6)
Corbus Pharmaceuticals Holdings, Inc. CRBP-Q 413.2 02/15/2019 12.1 (30.1)
Khiron Life Sciences Corp. KHRN-X 124.2 02/22/2019 4.35 (34.7)
WeedMD Inc. WMD-X 141.9 03/05/2019 2.15 (39.2)
Rubicon Organics Inc. ROMJ-CN 77.9 06/19/2019 3.47 (39.8)
OrganiGram Holdings Inc. OGI-T 724.7 05/21/2019 11.3 (43.4)
MGC Pharmaceuticals Limited MXC-ASX 42.7 10/16/2018 0.075 (46.0)
Creso Pharma Limited CPH-ASX 39.9 10/17/2018 0.602 (46.2)
Cann Group Limited CAN-ASX 181.1 11/08/2018 2.72 (46.8)
1933 Industries Inc. TGIF-CN 75.7 04/01/2019 0.62 (48.0)
Auxly Cannabis Group Inc. XLY-X 455.0 10/16/2018 1.62 (48.6)
Eve & Co Incorporated EVE-X 58.7 03/22/2019 0.63 (50.6)
Green Thumb Industries Inc. GTII-CN 2,652.3 10/16/2018 25.66 (50.9)
Harvest One Cannabis Inc. HVT-X 83.7 03/19/2019 1.15 (53.6)
Radient Technologies Inc. RTI-X 152.6 10/16/2018 1.24 (54.1)
James E. Wagner Cultivation Corporation JWCA-X 39.8 04/04/2019 1.28 (54.3)
Sproutly Canada Inc. SPR-CN 80.9 04/30/2019 1.08 (55.6)
The Supreme Cannabis Company, Inc. FIRE-T 339.9 02/04/2019 2.36 (56.0)
Together Pharma Ltd TGTR-TASE 52.1 02/06/2019 2.88 (56.9)
The Flowr Corporation FLWR-X 217.8 03/13/2019 8.42 (59.6)
TerrAscend Corp. TER-CN 621.0 10/16/2018 13.5 (60.2)
HEXO Corp. HEXO-T 866.0 04/29/2019 11.29 (62.3)
Aphria Inc. APHA-T 1,806.4 10/16/2018 20.96 (64.0)
Canopy Growth Corporation WEED-T 9,228.9 10/16/2018 76.68 (64.0)
Aurora Cannabis Inc. ACB-T 5,113.0 10/16/2018 16.24 (67.0)
Delta 9 Cannabis Inc. DN-T 52.7 10/18/2018 2.35 (68.3)
Pyxus International, Inc. PYX-N 148.2 10/17/2018 51.23 (68.4)
AusCann Group Holdings Ltd AC8-ASX 77.8 10/17/2018 0.856 (69.1)
Youngevity International, Inc. YGYI-Q 186.7 10/16/2018 21.02 (70.4)
Chemesis International Inc. CSI-CN 63.6 03/11/2019 2.28 (70.7)
Canopy Rivers Inc. RIV-T 322.7 10/16/2018 6.33 (71.5)
Australis Capital Inc. AUSA-CN 102.3 10/16/2018 2.35 (71.9)
Wildflower Brands Inc. SUN-CN 41.3 10/16/2018 1.1 (72.0)
Liberty Health Sciences Inc. LHS-CN 138.1 11/07/2018 1.59 (72.6)
Sunniva Inc. SNN-CN 58.6 02/21/2019 5.66 (73.7)
RavenQuest BioMed Inc. RQB-CN 28.5 10/17/2018 1.0 (75.0)
iAnthus Capital Holdings, Inc. IAN-CN 308.9 10/18/2018 8.69 (76.2)
The Green Organic Dutchman Holdings Ltd. TGOD-T 366.4 10/16/2018 6.08 (76.6)
Choom Holdings Inc. CHOO-CN 47.7 11/05/2018 1.15 (76.7)
Aleafia Health Inc. ALEF-T 222.6 10/16/2018 3.95 (76.9)
VIVO Cannabis Inc. VIVO-X 84.3 10/16/2018 1.47 (79.8)
MedMen Enterprises Inc. MMEN-CN 309.8 10/18/2018 9.88 (81.8)
AgraFlora Organics International Inc. AGRA-CN 222.8 10/16/2018 1.5 (82.9)
Emerald Health Therapeutics, Inc. EMH-X 124.1 11/08/2018 5.25 (83.9)
Namaste Technologies Inc. N-X 140.0 10/16/2018 3.12 (84.6)
Tilray, Inc. TLRY-Q 2,878.7 10/16/2018 231.33 (86.6)
CannTrust Holdings Inc. TRST-T 257.5 10/16/2018 15.5 (87.8)
FSD Pharma Inc. HUGE-CN 0.354 10/16/2018 0.74 (93.8)

Source: S&P Capital IQ

Figures in CAD

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