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Canadian ETF firm Horizons ETFs ramps up marijuana exposure

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Canadian ETF firm Horizons ETFs has announced new developments with its suite of Marijuana-focused ETFs.

The developments include the listing of futures contracts on the Horizons Marijuana Life Sciences Index ETF and the filing of a preliminary prospectus to launch leveraged, inverse and inverse leveraged ETFs that provide exposure to Canadian-listed Marijuana companies.
 
Futures on units of HMMJ will trade on the Montreal Exchange. Futures contracts on HMMJ will be available with quarterly expiration dates, in January, March, June and September – initially extending to a June 2019 expiry. 
“We view the formal availability of futures on HMMJ as recognition by the Canadian investor marketplace that HMMJ is the key benchmark for Marijuana investing in Canada,” says Steve Hawkins, President and Co-CEO of Horizons ETFs. “For us, this further legitimises Marijuana-equity investing and HMMJ as the key way to get broad index exposure to this rapidly growing sector.”  
 
Horizons ETFs also filed a preliminary prospectus last week to launch three new ETFs that provide leveraged, inverse and inverse leveraged exposure to Canadian-listed Marijuana companies as represented by the Solactive Canadian Marijuana Companies Index.
 
The Solactive Canadian Marijuana Companies Index is an index of investable equity securities of Canadian Marijuana companies that are listed on a Canadian exchange. The Index is intended to track the price movements in shares of Canadian companies which are mainly active in the Marijuana industry. The Index is published in Canadian dollars.
 
These ETFs will be branded under Horizons ETFs’ family of tactical BetaPro ETFs.
 
The proposed investment objective for each respective ETF is as follows:
 
BetaPro Canadian Marijuana Companies 2x Daily Bull ETF (HMJU): This proposed ETF seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to two times (200 per cent) the daily performance of the Solactive Canadian Marijuana Companies Index. The proposed ticker for this ETF is HMJU:TSX.
 
BetaPro Canadian Marijuana Companies -2x Daily Bear ETF (HMJD): This proposed ETF seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to two times (200 per cent) the inverse (opposite) of the daily performance of the Solactive Canadian Marijuana Companies Index. The proposed ticker for this ETF is HMJD:TSX.
 
BetaPro Canadian Marijuana Companies Inverse ETF (HMJI): This proposed ETF seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to one times (100 per cent) the inverse (opposite) of the daily performance of the Solactive Canadian Marijuana Companies Index. The proposed ticker for this ETF is HMJI:TSX.
 
“Given the underlying volatility of this sector, we believe there is demand from certain sophisticated Canadian investors to take on more risk using leveraged ETFs to attempt to generate potentially higher short-term returns – very much like they have done with gold mining stocks,” says Hawkins.
 
Currently, the Manager anticipates that, in respect of HMJI and HMJD, based on existing market conditions (particularly, the high cost of borrowing the securities of Marijuana companies to provide ‘short’ exposure), the hedging costs incurred by a counterparty and charged to HMJI or HMJD, as applicable, and indirectly borne by unitholders, are expected to be material, and will be between 10 per cent and 25 per cent per annum of the aggregate notional exposure of HMJI or HMJD’s forward documents, as applicable. This means that the hedging costs incurred by a counterparty may be as high as between 20 per cent and 50 per cent per annum of the net asset value of HMJD.
Additionally, any security imbalances caused by material rebalances or trading halts can affect the marked-to-market value of the forward documents negatively on any given day in relation to the closing level of the underlying index. The hedging costs of each of HMJI and HMJD can increase, will be assessed on a monthly basis to reflect then-current market conditions and are expected to materially impair the ability of HMJI and HMJD to meet their investment objectives.
 
“Shorting Marijuana stocks in particular is an expensive and complex process. If used appropriately, inverse Marijuana ETFs could be a potentially more liquid and easier way for investors to get short exposure to Canadian-listed Marijuana stocks while limiting their risk to what they invested,” says Hawkins. “It is important to note that these ETFs certainly wouldn’t eliminate many of the risks investors face when shorting Marijuana stocks, which includes being subject to the high cost of borrowing Marijuana stocks.”

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