The first marijuana Exchange Traded Fund (ETF) opens for trading on the Toronto Stock Exchange (“TSE”) on April 5, 2017.
Horizons Medical Marijuana Life Sciences ETF, (proposed ticker symbol – TSE:HMMJ) is an index ETF with a 0.75% management fee. Comprised of eleven Canadian and four American publicly listed companies, HMMJ offers risk taking investors the opportunity to diversify exposure to the rapidly expanding marijuana industry. These companies include pure play weed companies involved with medical marijuana production and distribution, as well ancillary businesses focused on real estate, biopharmaceuticals, and fertilizer.
Trail Blazing Canada
In 2001, Canada was the first country to legalize medical marijuana. And while Uruguay legalized marijuana for recreational use in 2014, the Canadian government has stated its intention to become the second country to pass the pot post, likely sometime this year or in 2018.
It’s this political commitment to legalize recreational pot use that has lit a fire under stock prices of Canada’s publicly traded marijuana producers. And it’s Canada’s permissive, open for business, regulatory environment that allows for HMMJ to list on the TSE.
USA Flashes Yellow
As for the United States permitting the same kind of ETF listing, forget about it.
Despite pot being legal for medical purposes in twenty-eight States and D.C., and for recreational purposes in eight States, as far as the Federal government is concerned, marijuana remains a Schedule 1 narcotic, in the same category as heroin. Which makes any informed consumer wonder what the heck the Feds are smoking if they believe that the effects of marijuana are at all comparable to heroin!
But even if the AgroSphere ETF is given the green light, which is by no means assured at this time, marijuana producers and distributers (i.e., companies with tremendous growth potential) would not be included. Why? Because pot is currently illegal under Federal law and the SEC is a creature of, and governed by, Federal law.
Instead, the Agrosphere ETF would be limited to investing in companies ‘making prescription drugs using cannabis extracts, producing or selling derivatives of industrial hemp, and companies involved in the supply chains of the these kinds of companies’.
Bottom line: if approved, the Agrosphere ETF would be an indirect play on the marijuana industry, one that would not reap anywhere near the same kind of gains as HMMJ given its exclusion of pot producers and distributors.
Burgeoning Growth In Getting High
It was only a matter of time before an ETF such as HMMJ listed on a stock exchange. And if HMMJ is successful, copycat ETFs offered through other financial companies will soon appear on the TSE and in other countries with progressive laws. Because at this stage of the game with the legal marijuana industry in its infancy, tuned in investors know there is tremendous growth potential.
As an early indicator, look to Colorado: the first State to legalize recreational use.
In 2015, sales revenue hit $996 million, with the government raking in $135 million, far more than the $42 million collected from alcohol taxes. In 2016, revenues grew above $1.3 billion, over $200 million being handed over to government.
In the United States overall, according to Arcview Market Research, pot sales climbed 30% in 2016. By 2020, crystal ball gazers are estimating that the industry will triple sales.
Turning back to Canada, no comparable figures are yet available. But, soon after recreational legalization happens, economists are estimating $22 billion in annual revenues with $5 billion a year handed over to government.
Canada’s Prime Minister, Justin Trudeau recently said that all revenue from pot sales will be used to address public health and addiction issues and that, “It was never about a money- maker, it was always about public health, public safety.”
Well, that’s all fine and good. But the fact is that the money needed to fund public health measures has to come from somewhere. And with pot sales expected to significantly increase government’s take, traditional sources of government revenue may be directed toward other government spending or tax reductions.
So really, legalizing pot is at least indirectly, if not directly, about being a money-maker for government. Not to mention investors, too.
The author has no position in HMMJ and does not plan to open any positions in HMMJ.