Horizons Marijuana Life Sciences ETF to diversify your marijuana risk

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Marijuana Producer

This ETF holds primarily Canadian cannabis and related companies with additional exposure to the American and U.K. markets. Surprisingly, it offers a cash dividend—but not in the way you’d think.


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HORIZONS MARIJUANA LIFE SCIENCES ETF $17.12 (Toronto symbol HMMJ; Units outstanding: 45.9 million; Market cap: $785.8 million; TSI Cannabis Quality Rating (CQR): ; www.horizonsetfs.com) invests in North American firms that are legally involved in the cannabis industry.

The fund tracks the North American Marijuana Index, which weights its stocks by their market cap and sets an upper limit of 10% for any one stock. Canadian companies make up roughly 80% of the ETF’s portfolio, the U.S., 12%, and the U.K., 8%. The fund invests in cannabis growers and cultivators as well as bio-pharmaceutical companies and support firms such as lighting technology and fertilizer companies.

Despite its 64 different stocks, the ETF’s holdings are still highly concentrated in growers: the top six producers, alone, make up almost 50% of the overall assets.

The top 10 holdings are Aurora Cannabis (Canada, 10.6%), Canopy Growth (Canada, 10.5%), Tilray Inc. (Canada, 9.6%), %), Cronos Group (Canada, 9.3%), GW Pharmaceuticals (U.K., 7.4%), Aphria (Canada, 7.0%), Scotts Miracle-Gro (U.S., 6.1%), Charlotte’s Web Holdings (U.S., 5.6%), Hexo Corp. (Canada, 3.9%) and Organigram Holdings (Canada, 3.0%). The fund is re-balanced each quarter.

The ETF launched in April 2017. It charges a relatively high MER of 0.75%, but has a reasonable size. An average of $19 million in units trade daily, which provides ample liquidity.

The fund has gained 16.2% since the start of this year, while the broad-based S&P/TSX Composite Index rose 15.2%.

Most of the stocks that the ETF holds don’t pay dividends. However, Horizons earns money by lending those stocks to short sellers. The short sellers then sell them, hoping to buy them back later at a lower price.

Thanks to those income source, the ETF has now paid eight variable quarterly distributions since October 2017. The trailing 12-month total payment of $1.07 yields a high 6.2%. However, cash inflows from short sellers are highly volatile and the ETF’s distributions (and yield) could suddenly drop.

The Horizons Marijuana Life Sciences ETF has a 3-Leaf Cannabis Quality Rating (CQR).

For investors who want exposure to marijuana markets, this ETF cuts the risk of investing in individual cannabis stocks. That also means it holds stocks that we do not like. The ETF is a speculative buy for aggressive investors who want exposure to the marijuana industry.

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