According to data provider ETFGI, The Horizons Marijuana Life Sciences Index fund is the 18th largest Canadian ETF. The fund has seen an immense growth with $1.3 billion (€1.1 billion) in assets despite some rough troughs this year.
It is the world’s first cannabis exchange-traded fund and is set to become the second most profitable exchange-traded fund (ETF) in Canada with more than 50 per cent returns so far in 2019.
The tremendous growth in ETF highlights the demand and popularity of thematic ETFs, which can be explicitly observed by the focus on the incipient legal marijuana industry in North America.
The brisk popularity of Marijuana ETFs is grabbing eyeballs all over the country. Its high management charge and ability to retrieve large fees from lending stocks is one of the major contributing factors to its expanding marketability and admiration.
Todd Rosenbluth, director of ETF and mutual fund research at CFRA, a research company says, “There is high demand for these products without much supply, which allows the managers to charge a premium and be almost immune to the fee pressure that is widespread across the industry.”
Charges in the Marijuana ETF
The Horizons ETF charges 75 basis points (bp), or 75 cents for every $100 invested, which is several times the typical charge on a more general product. By contrast, the $7 billion (€6.1 billion) iShares S&P/TSX 60 Index ETF, Canada’s biggest, charges 20bp.
Launching and executing the idea of creation of Marijuana ETF Funds has never been an easy task. Marijuana has been selectively legalized in only a handful of states in the United States making it difficult to find a custodian.
Since the federal states prohibited legal use of marijuana, financial organizations and banks too, had their apprehensions.
However, several managers had applied to Securities and Exchange Commission, the US regulator to create products that aligned with the ETFMG Alternative Harvest ETF, said Mr. Rosenbluth.
The ETFMG Alternative Harvest ETF was quite an eminent fund when it boiled down to Marijuana ETF Funds in the United States.
However, no substantial ETF Funds were introduced in the market.
After Uruguay, Canada is the second country in the world which has permitted and legalised recreational usage of cannabis. 10 US states and Washington DC have also approved of legal recreational cannabis use and 32 for medical purposes.
Fluctuations in the Cannabis Industry
Quite similar to a conventional ETF fund, the cannabis ETF Funds too have been facing fluctuations ever since. A strong wave has been observed in the cannabis ETF industry as it tends to grow every single day.
The Horizons Fund was initiated with an investment fund of $10,000 (€8,790) ins May, 2017. It then, boomed up to $25,750 (€22,630) towards the last week of September, however it dropped by a drastic amount to $15,494 (€3,620) at the end of December. The fund has since then returned 52 per cent which seems quite appealing to investors.
Steve Hawkins, chief executive of Horizons ETFs says, “When we launched the fund, we had no expectation of how big it would get. I would probably have priced it higher if I had known how big it would be.”
He also added that the ETF’s investee companies were in demand from short sellers and Horizons generated up to 10 percent of the ETF’s yield by stock lending.