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Horizons ETFs Management Inc (TSE:HMMJ) Launches US-Focused Horizons US Marijuana Index (NEO:HMUS) - YouTube
Channel: Midas Letter
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[Intro music]
Narrator: Horizons ETFs is the world’s largest
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provider of cannabis ETFs.
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In April 2017, the company launched the world’s
first cannabis fund, HMMJ.
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More recently, they launched HMUS, the world’s
first US-focused cannabis index ETF.
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Horizons ETFs is listed on the TSX under the
symbol HMMJ.
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James West: Steve Hawkins joins me now, CEO
of Horizons ETFs.
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Steve, welcome back.
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Steve Hawkins: James, always a pleasure to
be here.
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James West: Steve, big news: you’re launching
the world’s first US-focused marijuana ETF.
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Congratulations.
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Steve Hawkins: Thank you very much, thank
you.
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James West: And you’re starting off with
a number of companies that are all US multi-state
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operators, except for a couple.
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So let’s start off with, what’s the concept
behind the ETF?
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What’s the objective, and who does it appeal
to?
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Steve Hawkins: Well, I mean, similar to when
we launched HMMJ, the world’s first ETF
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which was basically North American focused,
we’ve been receiving a lot of inquiries
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over the last few months of people wanted
to get into the US marijuana-focused space.
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Because our big fund cannot invest in US MSOs,
you know, we created a product, which we listed
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on the NEO Stock Exchange, which will be focused
solely on owning MSOs.
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And we believe that there’s a lot of appeal
in both Canada and the US to clients to get
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into this space.
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I mean, huge news this morning with Canopy
and Acreage, just shows the, you know, potential
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appeal for buying US marijuana operators,
even by not just mom and pop anymore, but
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by, you know, Canopy Growth – the largest
marijuana company in the world.
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James West: Right, wow, fascinating.
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And so, since it’s also big news today – the
Canopy/Acreage merger, if completed -
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Steve Hawkins: Potentially, yeah.
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James West: Would be the largest merger in
the history of the cannabis industry by far.
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Is there, does that mean that you would actually
start to carry Canopy in this US fund, as
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well?
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Steve Hawkins: Well, if we would no longer
be carrying Acreage, then we would be carrying
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Canopy, for sure, yeah, because it is a US-focused
operator.
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James West: Sure.
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Are there any risks or implications otherwise
to investors in this fund who might be Canadians
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crossing the border?
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I mean, how is that all going to work?
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Steve Hawkins: I think that people who cross
the border who own US cannabis companies right
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now, have to be very careful with respect
to how they answer the questions when they
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cross the border.
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I would say no different than owning Charlotte’s
Web or MedMen now, to owning our ETF.
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So you know, you have to have your head on
your shoulders and be able to answer your
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questions properly when you’re talking to
Homeland Security.
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James West: Never hurts to be on your way
to a birthday party.
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Steve Hawkins: I invest in ETFs.
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I am not invested in US marijuana-based ETFs.
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James West: Right.
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Okay, so what’s the size of the ETF at the
outset?
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Steve Hawkins: We launched it with $2 million;
we had already over $10 million worth of trading
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volume in the first hour of trading today,
so very successful launch for us – probably
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the single largest launch for the NEO Stock
Exchange since their inception.
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James West: Oh, wow, fantastic.
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And there’s some names in here that I see
are a little more lightly weighted than you
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would think with the market cap of them; why
is it, for example, that…let’s pick, well,
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let’s say Acreage Holdings is only 5.16
percent, but the market cap is way up there.
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Why is that?
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Steve Hawkins: Well, it’s simply because
of the voting structure of the shares that
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they have outstanding.
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Our fund is really based on the market cap
of the class of shares that’s issued on
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the, or trading on the stock exchange.
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So because of some of these complicated super-voting
structures of Acreage, Harvest, Truleaf, GTI,
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we have to only take into account the outstanding
shares of the listed class.
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So we’re underweight several of those names,
Truleaf probably being the most affected from
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a weight perspective, but you know, MedMen,
Acreage, are still high weightings in the
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index and our portfolio.
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But, you know, we can only really work on
the publicly available data that we have,
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and we can only use structurally the information
that is available.
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We can’t arbitrarily decide to overweight
or to put a higher weight into Acreage simply
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because we know the fully diluted shares is
X from a market cap perspective.
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James West: Okay, so just to sort of refresh
the memory of viewers who might not be aware,
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how does ETF logic work for an investor?
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Steve Hawkins: [laughter] Well, this ETF is
listed and trading on the NEO Stock Exchange.
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Almost all of the securities that we own in
our portfolio, there are 32 of them, 30 are
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listed on the CSE; two are listed on the NEO
Stock Exchange.
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An ETF is really a portfolio of diversified
investments into the underlying strategy itself.
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So with HMUS, our new ETF, it’s only going
to own MSOs for the most part, or other companies
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that have significant exposure to the marijuana
and hemp industry in there.
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So, TILT is within our selection universe.
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You know, TILT is not just an MSO; it has
all of these other proprietary pieces of technology,
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but they’re selling from a vape perspective
and things like that.
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So it’s anybody who’s really significantly
exposed to the marijuana or hemp industry
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in the US.
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We will own this basket of diversified securities.
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You know, you trade it just like you trade
any single stock, so if you’re trading any
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of these stocks individually right now, between
Curaleaf, Cresco, MedMen, Charlotte’s Web,
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iAnthus, you know, those are our top holdings
kind of thing, if you buy one of those through
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your brokerage account now, instead of entering
CWEB, you enter HMUS and now you’re buying
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a diversified portfolio.
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You have diversified exposure to this sector
strategy on a going-forward basis.
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You know, we always preach diversification
from an investment management perspective.
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You can roll the dice on one individual name
if you want to, or two, but we’re going
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to give you exposure to 32 different companies.
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If you didn’t own Acreage this morning,
you’re kind of pissed off, right?
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James West: Right.
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Steve Hawkins: You know, we own Acreage, right?
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If you just owned Charlotte’s Web, then
you could be down a little bit today.
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Harvest was up pretty good, Canopy was up
pretty good, but own an ETF.
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James West: Right.
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Sure.
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I think everybody in the investment space
has an expectation that the US, at some point,
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is going to eliminate the Federal prohibition
on cannabis, and at that point, would you
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expect – and I’m saying this in the context
of a forward-looking statement, that this
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is just a high level conceptual conversation
-
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Steve Hawkins: I got it.
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James West: Would you expect that that would
drive a lot more interest into your ETF, the
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US ETF?
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Steve Hawkins: Absolutely.
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I mean, legalization in any way, shape or
form, or whether it’s decriminalization,
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you know, removing marijuana as a Schedule
1 narcotic, I think those are all really,
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really big steps for the US marketplace.
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I don’t think it’s going to happen anytime
soon, but even Canopy thinks it’s going
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to happen down the road now, right?
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Getting exposure to the largest marijuana
market in the world is a very, very important
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step from an investment perspective.
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You know, our HMMJ portfolio already has these
names in the index, but we can’t own them
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because of our TSX listing.
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You know, Canopy has had to enter into some
sort of arrangement with the TSX and NASDAQ
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to be able to even pursue this potential transaction
with Acreage.
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But it’s all based on the legality down
the road, right?
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So when will that happen?
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You know, this Canopy/Acreage transaction
cannot be consummated until that legality
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happens.
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But I think we’re all thinking that, you
know, the US has lagged behind Canada so much
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from a capital markets investment perspective
into the sector.
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You know, our valuations are probably a little
more overinflated relative to the US.
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The US market is really going to be the next
driver of returns for cannabis companies,
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maybe some Israel companies, maybe some Australia
companies, maybe some Latin America companies.
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James West: Yeah, okay!
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Steve Hawkins: But you know, there’s lots
of activity going on in the space, but we
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think the US market is really going to be
sort of the next big driver of bigger returns.
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James West: Okay.
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Do you think that this transaction – Canopy
buying Acreage – is likely to catalyze more
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merger activity among Canadian and US operators?
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Steve Hawkins: Absolutely.
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You know, I think that you’re, now you’re
going to have to see, you know, I mean, Canopy
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said, We talked to five different companies
out there.
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I mean, I’ve probably talked to all of those
same companies in the past week or so myself,
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and you know, most of them are saying, We
want to be the next Canopy.
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We want to be the biggest in the world.
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Right?
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And you know, decriminalization or legalization
will allow those companies to really grow
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very, very effectively and very quickly, you
know, not having to deal with all of the inter-state
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operations.
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They can move IP wherever they want, right?
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But actually growing and having access to
capital markets, I think, is really going
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to change the marijuana companies, the way
they’re looked at around the world.
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James West: Yeah, you bet.
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All right, Steve, that’s a great introduction
to the new US-focused ETF, HMUS.
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Thanks very much for your contribution today.
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Steve Hawkins: Thanks, James, for having me.
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