Canada could get a new marijuana ETF focused on U.S. Companies

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March 22, 2019 1:28pm NYSE:MJ

NYSE:MJ | News, Ratings, and Charts

From Todd Shriber: Canadian investors have more cannabis exchange traded funds to invest in than their U.S. counterparts and the universe of Canada-listed marijuana is slated to grow with Horizons ETFs Management Canada Inc. planning a new fund that focuses on U.S.-based marijuana companies.

What To Know

Prior to legalizing marijuana for adult recreational use last October, Canada was already home to several cannabis ETFs, giving it a sizable lead in terms of weed ETF population over the U.S. where the ETFMG Alternative Harvest ETF MJ 4.04% is the only dedicated cannabis ETF.

North of the border, Horizons ETFs Management is one of the leading issuers of cannabis ETFs and sponsors the Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ)HMLSF 4.38%, which is battling MJ for the title of world’s largest cannabis ETF.

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Why It’s Important

Horizons is looking to launch a cannabis ETF that will be focused exclusively on U.S.-licensed producers.

“We’ve had a lot of investor inquiries saying, ‘HMMJ is great but I want exposure to the underlying U.S. marijuana market directly,” said Horizons CEO Stephen Hawkings in an interview with Bloomberg.

Toronto-listed HMMJ can’t hold U.S.-based cannabis companies because the Toronto Stock Exchange bars funds from holding companies that don’t comply with Canadian laws and regulations.

In the U.S., would-be issuers of marijuana ETFs face their own regulatory hurdles. MJ previously existed as a Latin American real estate ETF and was converted into a cannabis fund. Due to the fact that marijuana remains illegal at the federal level in the U.S., however, there are legal concerns for custody banks that would hold shares of cannabis companies on behalf of ETF sponsors because U.S. banks are federally regulated.

What’s Next

It remains to be seen just how many U.S. companies will reside in the new Horizons ETF. The universe of U.S.-listed cannabis companies trading on major exchanges is small compared to what investors find in Canada.

MJ confirms as much. At the end of last year, the largest U.S.-listed marijuana ETF allocated nearly 62 percent of its weight to Canadian companies compared to just 24.2 percent in U.S. marijuana firms, according to issuer data.

The ETFMG Alternative Harvest ETF (MJ) was trading at $36.86 per share on Friday afternoon, down $1.58 (-4.11%). Year-to-date, MJ has gained 13.33%, versus a 5.48% rise in the benchmark S&P 500 index during the same period.

MJ currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #59 of 75 ETFs in the Global Equities ETFs category.

This article is brought to you courtesy of Benzinga.

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