April 24, 2019

Horizons ETFs Management Inc (TSE:HMMJ) Launches US-Focused Horizons US Marijuana Index (NEO:HMUS)

Midas Letter
Midas Letter
Horizons ETFs Management Inc (TSE:HMMJ) Launches US-Focused Horizons US Marijuana Index (NEO:HMUS)

Horizons ETFs Management Inc CEO Steve Hawkins is thrilled with the launch of Horizons US Marijuana Index (NEO:HMUS) (NEO:HMUS.U), the world’s first US-focused cannabis index ETF. He discusses the rationale behind creating the new ETF and the key ways it differs from company’s existing marijuana index, Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) (OTCMKTS:HMLSF). HMUS is designed to provide investors with a diversified basket of stocks, as well as exposure to the largest cannabis market in the world. He explains that the new fund is NEO exchange-listed and was created to meet investor demand for US MSOs, which HMMJ cannot hold. Hawkins reveals the fund was launched with over $2 million in assets and was up to $10 million after just an hour of trading, making it the most successful NEO launch in history. Currently, HMUS is carrying 32 names, 30 of which are listed on the CSE. Hawkins discusses several of the US MSOs in the fund’s selection universe, including TILT Holdings Inc (CNSX:TILT) (OTCMKTS:SVVTF) (FRA:0T01). He shares his thoughts on the impact of federal decriminalization and his belief that the US cannabis space will be the next significant driver of large investor returns.


Narrator: Horizons ETFs is the world’s largest provider of cannabis ETFs. In April 2017, the company launched the world’s first cannabis fund, HMMJ. More recently, they launched HMUS, the world’s first US-focused cannabis index ETF. Horizons ETFs is listed on the TSX under the symbol HMMJ.

[stock_chart symbol=”HMMJ:TSX” align=”left” range=”5D”]

James West:   Steve Hawkins joins me now, CEO of Horizons ETFs. Steve, welcome back.

Steve Hawkins: James, always a pleasure to be here.

James West:   Steve, big news: you’re launching the world’s first US-focused marijuana ETF. Congratulations.

Steve Hawkins: Thank you very much, thank you.

James West:   And you’re starting off with a number of companies that are all US multi-state operators, except for a couple. So let’s start off with, what’s the concept behind the ETF? What’s the objective, and who does it appeal to?

Steve Hawkins: Well, I mean, similar to when we launched HMMJ, the world’s first ETF which was basically North American focused, we’ve been receiving a lot of inquiries over the last few months of people wanted to get into the US marijuana-focused space. Because our big fund cannot invest in US MSOs, you know, we created a product, which we listed on the NEO Stock Exchange, which will be focused solely on owning MSOs. And we believe that there’s a lot of appeal in both Canada and the US to clients to get into this space. I mean, huge news this morning with Canopy and Acreage, just shows the, you know, potential appeal for buying US marijuana operators, even by not just mom and pop anymore, but by, you know, Canopy Growth – the largest marijuana company in the world.

James West:   Right, wow, fascinating. And so, since it’s also big news today – the Canopy/Acreage merger, if completed –

Steve Hawkins: Potentially, yeah.

James West:   Would be the largest merger in the history of the cannabis industry by far. Is there, does that mean that you would actually start to carry Canopy in this US fund, as well?

Steve Hawkins: Well, if we would no longer be carrying Acreage, then we would be carrying Canopy, for sure, yeah, because it is a US-focused operator.

James West:   Sure. Are there any risks or implications otherwise to investors in this fund who might be Canadians crossing the border? I mean, how is that all going to work?

Steve Hawkins: I think that people who cross the border who own US cannabis companies right now, have to be very careful with respect to how they answer the questions when they cross the border. I would say no different than owning Charlotte’s Web or MedMen now, to owning our ETF. So you know, you have to have your head on your shoulders and be able to answer your questions properly when you’re talking to Homeland Security.

James West:   Never hurts to be on your way to a birthday party.

Steve Hawkins: I invest in ETFs. I am not invested in US marijuana-based ETFs.

James West:   Right. Okay, so what’s the size of the ETF at the outset?

Steve Hawkins: We launched it with $2 million; we had already over $10 million worth of trading volume in the first hour of trading today, so very successful launch for us – probably the single largest launch for the NEO Stock Exchange since their inception.

James West:   Oh, wow, fantastic. And there’s some names in here that I see are a little more lightly weighted than you would think with the market cap of them; why is it, for example, that…let’s pick, well, let’s say Acreage Holdings is only 5.16 percent, but the market cap is way up there. Why is that?

Steve Hawkins: Well, it’s simply because of the voting structure of the shares that they have outstanding. Our fund is really based on the market cap of the class of shares that’s issued on the, or trading on the stock exchange. So because of some of these complicated super-voting structures of Acreage, Harvest, Truleaf, GTI, we have to only take into account the outstanding shares of the listed class. So we’re underweight several of those names, Truleaf probably being the most affected from a weight perspective, but you know, MedMen, Acreage, are still high weightings in the index and our portfolio.

But, you know, we can only really work on the publicly available data that we have, and we can only use structurally the information that is available. We can’t arbitrarily decide to overweight or to put a higher weight into Acreage simply because we know the fully diluted shares is X from a market cap perspective.

James West:   Okay, so just to sort of refresh the memory of viewers who might not be aware, how does ETF logic work for an investor?

Steve Hawkins: [laughter] Well, this ETF is listed and trading on the NEO Stock Exchange. Almost all of the securities that we own in our portfolio, there are 32 of them, 30 are listed on the CSE; two are listed on the NEO Stock Exchange. An ETF is really a portfolio of diversified investments into the underlying strategy itself. So with HMUS, our new ETF, it’s only going to own MSOs for the most part, or other companies that have significant exposure to the marijuana and hemp industry in there. So, TILT is within our selection universe. You know, TILT is not just an MSO; it has all of these other proprietary pieces of technology, but they’re selling from a vape perspective and things like that.

So it’s anybody who’s really significantly exposed to the marijuana or hemp industry in the US. We will own this basket of diversified securities. You know, you trade it just like you trade any single stock, so if you’re trading any of these stocks individually right now, between Curaleaf, Cresco, MedMen, Charlotte’s Web, iAnthus, you know, those are our top holdings kind of thing, if you buy one of those through your brokerage account now, instead of entering CWEB, you enter HMUS and now you’re buying a diversified portfolio. You have diversified exposure to this sector strategy on a going-forward basis.

You know, we always preach diversification from an investment management perspective. You can roll the dice on one individual name if you want to, or two, but we’re going to give you exposure to 32 different companies. If you didn’t own Acreage this morning, you’re kind of pissed off, right?

James West:   Right.

Steve Hawkins: You know, we own Acreage, right? If you just owned Charlotte’s Web, then you could be down a little bit today. Harvest was up pretty good, Canopy was up pretty good, but own an ETF.

James West:   Right. Sure. I think everybody in the investment space has an expectation that the US, at some point, is going to eliminate the Federal prohibition on cannabis, and at that point, would you expect – and I’m saying this in the context of a forward-looking statement, that this is just a high level conceptual conversation –

Steve Hawkins: I got it.

James West:   Would you expect that that would drive a lot more interest into your ETF, the US ETF?

Steve Hawkins: Absolutely. I mean, legalization in any way, shape or form, or whether it’s decriminalization, you know, removing marijuana as a Schedule 1 narcotic, I think those are all really, really big steps for the US marketplace. I don’t think it’s going to happen anytime soon, but even Canopy thinks it’s going to happen down the road now, right? Getting exposure to the largest marijuana market in the world is a very, very important step from an investment perspective. You know, our HMMJ portfolio already has these names in the index, but we can’t own them because of our TSX listing.

You know, Canopy has had to enter into some sort of arrangement with the TSX and NASDAQ to be able to even pursue this potential transaction with Acreage. But it’s all based on the legality down the road, right? So when will that happen? You know, this Canopy/Acreage transaction cannot be consummated until that legality happens. But I think we’re all thinking that, you know, the US has lagged behind Canada so much from a capital markets investment perspective into the sector. You know, our valuations are probably a little more overinflated relative to the US. The US market is really going to be the next driver of returns for cannabis companies, maybe some Israel companies, maybe some Australia companies, maybe some Latin America companies.

James West:   Yeah, okay!

Steve Hawkins: But you know, there’s lots of activity going on in the space, but we think the US market is really going to be sort of the next big driver of bigger returns.

James West:   Okay. Do you think that this transaction – Canopy buying Acreage – is likely to catalyze more merger activity among Canadian and US operators?

Steve Hawkins: Absolutely. You know, I think that you’re, now you’re going to have to see, you know, I mean, Canopy said, We talked to five different companies out there. I mean, I’ve probably talked to all of those same companies in the past week or so myself, and you know, most of them are saying, We want to be the next Canopy. We want to be the biggest in the world. Right? And you know, decriminalization or legalization will allow those companies to really grow very, very effectively and very quickly, you know, not having to deal with all of the inter-state operations. They can move IP wherever they want, right? But actually growing and having access to capital markets, I think, is really going to change the marijuana companies, the way they’re looked at around the world.

James West:   Yeah, you bet. All right, Steve, that’s a great introduction to the new US-focused ETF, HMUS. Thanks very much for your contribution today.

Steve Hawkins: Thanks, James, for having me.


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