Horizons ETFs Management (TSE:HMMJ) Senior VP Discusses Farm Bill’s Impact on TSX-Listed Companies
Horizons ETFs Management Senior Vice President Mark Noble addresses the impact of the Farm Bill’s passage on TSX-listed companies. Noble notes that the company’s fund, Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) (OTCMKTS:HMLSF), is invested in companies listed in Canada that operate legally. As a result, the fund does not have exposure to companies with US cultivation to stay aligned with the TSX’s rules. Noble addresses Canopy Growth Corp’s (TSE:WEED) (NYSE:CGC) (FRA:11L1) recent New York State hemp license and notes that as the license is legal because of the Farm Bill, it is compliant with TSX rules. Noble discusses the potential size of the global medical cannabis market and estimates it at $55 to $70 billion annually.
James West: I’m now joined by Mark Noble. He’s the Executive Vice President of Horizons ETFs. Mark, welcome.
Mark Noble: Hey, great to be here.
James West: You bet. Mark, it’s your first time here.
Mark Noble: Right.
James West: And Horizons HMMJ is the symbol?
Mark Noble: It’s our big marijuana ticker yeah.
James West: Right. Okay. So now this ETF invest in a basket of cannabis stock…
Mark Noble: Right.
James West: And they’re all Canadian?
Mark Noble: No, they’re all North American.
James West: Oh, okay.
Mark Noble: It’s just that the majority of listings globally are in Canada.
James West: Right.
Mark Noble: So, Canada is ground zero for the majority of listing so that index ETF is supposed to provide exposure to North America, but they’re scant pickings when you go to the U.S because if you’re cultivation or distribution, you’re actually illegally producing marijuana according to federal law.
James West: That’s right. So HMMJ does not invest in companies that are operating federally illegally?
Mark Noble: No, correct.
James West: Which is all of the growers in the Americas?
Mark Noble: Exactly, exactly.
James West: Right okay, so that’s interesting. So, in your opinion is the limited basket of mostly North American operators but Canadian companies, is that an advantage in terms of protecting the investors in the ETF from exposure that might still yet result by the fact that it’s illegal federally in the United States?
Mark Noble: Right. I think you know, it is a big gray area. So you have a lot of people asking us, you know, what you know, what do you think about U.S exposure and there’s only like maybe a handful I think four or five states now that are completely illegal. Most of the US has liberalized with the state level and when you look at surveys of investors and people in general from both ideologies, I mean, that’s a really interesting thing. Whether they’re Republican or Democrats there seems to be an understanding that the prohibition of marijuana needs to come to an end.
But, yeah for very clear reasons we’ve chosen to have a TSX listed ETF, which means that it won’t have any U.S exposure as per TSX listing standards. It’s really important actually though for Canadian investors to know that according to the Canadian Securities administrators. They’re okay with Canadian-listed stocks that have U.S cultivation businesses as long as their legal at the state level. So that’s why the Canadian Stock Exchange has seen such a bonanza of stock listings. A lot of the big U.S producers are actually listed in Canada.
So, Canada is very much ground zero for all global listings of marijuana companies because of that progressive framework. It’s just that in order to be listed on the TSX, they have to fall in line and make sure that none of the distribution direct distribution direct cultivation is occurring that would be offside with federal law. So, as a TSX listed security, we cannot hold companies with U.S cultivation exposure. However, it is important to know that if you look on the CSC, for example, there are a lot of stocks that are what we call Direct Pure Play into the U.S market and those are you know, become very popular the last few months.
James West: Yeah. The largest Canadian company, Canopy.
Mark Noble: Right.
James West: Is now licensed to produce CBDs in the state of New York. Do you think that is going to have an opening warming effect to the TSX in relaxing its rules about causing Canadian companies not to trade on the TSX or TSX Venture if they touch the plant the United States in that, you know, now that CBD has been changed to a schedule 5 drug. And as soon as there is a THC medicine that the FDA approves it stands to reason that that too will become a schedule 5 drug at what point does the TSX ease up on the restrictions, especially since they’re losing so much business to the CSE in the process.
Mark Noble: Well, the TSX is an excellent partner of ours so I don’t I don’t want to you know go where they’re thinking. But I mean they did give us guidance on the CBD aspect and so any of the you know, the non THC hemp that’s legal under the new agricultural bill, those companies, my understanding, they’re allowed to do that.
So, you know, whatever Canopy, what Canopy is doing with investing in CBD and hemp that’s not offside again. So, I think there’s a lot of openness that as you see more Federal restrictions come off then that allows for more flexibility for the companies to get listings. But of course, you know, we have to then look forward that at a certain point then the big tick the big stock exchanges in the United States the NASDAQ, the Toronto Stock… Sorry the New York Stock Exchange, you know, they’re going to get into that business as well.
When you start seeing federal legalization the United States if that occurs in the next, you know, 24 months and then that’s a whole different ball game in terms of exposure. I mean a lot of the reason that we’ve seen Canopy, Tilray in particular, Cronos do so extraordinary well relative to the broader market last year was because of their U.S listings. What was happening is by achieving that U.S listing much easier for U.S retail investors. I mean, you do need to understand that the vast majority of wealth more than any other sector we’ve ever seen in capital markets apart from maybe crypto currencies, is self-directed investors buying these and in the U.S which is 10 times the size of Canada we saw huge flows coming out of last summer into those U.S. listed stocks.
And so just by nature of having U.S listing increases the potential for the stock by tenfold in terms of the number of investors. So, you know, I again, you know, while Canada has an advantage our advantage right now exists because of that regulatory arbitrage the fact that we can build a capital markets for our marijuana industry globally in Canada. But as soon as that Federal legalization is gone on the U.S, then you have to realize that all steam ships ahead and you know in terms of making a huge impact on a myriad of listings and very quickly that market could take off and be an excess of a hundred billion dollars.
James West: Sure. When do you see that happening?
Mark Noble: I don’t want to go into the minds of politicians. What I do find really interesting is that you know, we’ve seen how successful the global market has been in terms of how much money is going to be made even just on medical. I think most numbers in the medical market are kind of putting at around 50 to 60 billion dollars. When you talk to the big companies that’s really where they want to go as well because at the end of the day growing marijuana itself, is it agricultural crop and that’s obviously that naysayers people like to short this sector against. The part they miss is that the IP aspect when it comes to pharmaceutical aspect of it is extraordinary lucrative. It’s the pseudo or in some cases straight up pharmaceutical drugs.
So, you have the ability to have that IP and charge a lot more from a margin perspective. So there’s a lot of money. I mean Canada as a total Market is may be capped at about twenty two billion. But you can grow another $55 to $70 billion on the global medical, not even recreational, market. And so we’re already seeing big inroads happening in Germany, Israel, Australia, Denmark and South Korea recently did medical marijuana. Out of the U.K looks like it’s ready to roll out medical marijuana.
These aggregate markets are massive. I can’t see the United States were at the you know core of what they do is capitalism wanting to give that to all these other nation providers when they have, you know, a lot of infrastructure already in place because they did have first mover at the state level. So, there’s a lot of brain trust a lot of well-established infrastructure for them to get involved. They’re just being hamstrung by the fact they can’t get the capital markets funding by not using the U.S Capital market system.
James West: Hmm interesting. Mark, that’s a great bit of perspective there. And so we’re going to leave it there for now and come back to you in due course. Thank you very much.
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