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Horizons ETFs to launch US-focused marijuana ETF

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Horizons ETFs Management has filed its final prospectus to launch the Horizons US Marijuana Index ETF. 

Units of the exchange traded fund (HMUS) have been conditionally approved for listing by the NEO Exchange (NEO) and are slated to begin trading on 18 April, 2019, under the ticker symbols HMUS (Canadian dollar units) and HMUS.U (US dollar units).

Horizons says HMUS will be the first ETF in the world that is solely focused on providing exposure to companies with significant business activities in, or significant exposure to, the United States marijuana or hemp industries. HMUS is an index (or passively managed) ETF, which seeks to replicate, to the extent possible, the performance of the US Marijuana Companies Index, net of expenses.

“While marijuana remains federally illegal for medical and recreational usage in the United States, the number of legal cultivators and distributors at the US state level continues to grow. Many of these companies have chosen Canadian stock exchanges to list their stocks in order to raise capital to meet growing investor demand,” says Steve Hawkins, President and CEO of Horizons ETFs. “HMUS will be the first index ETF solution to focus solely on identifying, and investing directly in, US marijuana and hemp companies. As the U.S. continues to further liberalise its marijuana regulations, we anticipate that more investors will be looking to invest in companies with significant business operations in the US market and HMUS will provide a diversified and liquid way to gain that exposure in one ETF.”

The Underlying Index is designed to provide exposure to the performance of a basket of publicly-listed companies having significant business activities in, or significant exposure to, the marijuana or hemp industries in the United States. Constituent companies will primarily include those with business activities as a producer, developer, or supplier of marijuana or hemp-based products, and can also include investment companies focused on investments in the Marijuana or Hemp industries, or companies with businesses ancillary to the Marijuana or Hemp industries. 

Constituents of the Underlying Index are selected from Canadian and US exchanges. While some securities may be listed on major North American exchanges, the majority of the securities currently trade on North American exchanges that include but are not limited to the Canadian Securities Exchange and NEO.

The Underlying Index is market-capitalisation-weighted, subject to a cap for each constituent issuer of a maximum of 10 per cent of the net asset value of the Underlying Index at the time of any rebalance. For a security to be eligible for the Underlying Index, the issuer will generally need to have a market capitalisation of greater than USD75 million.

The top-20 constituents and weights of the Underlying Index as at 15 April, 2019, are in the table below. Please note that the weights of the Underlying Index and the actual portfolio weights of HMUS could be different. Horizons ETFs will not invest the assets of HMUS on a discretionary basis except to the extent it may select securities of issuers in the course of employing a stratified sampling strategy to seek to closely match the investment characteristics of the Underlying Index.

Only stocks that meet minimum size and liquidity thresholds are eligible for inclusion in the Underlying Index. The composition of the Underlying Index is rebalanced at least quarterly on a market-capitalisation basis, and capped so that no single stock can exceed 10 per cent of the weight of the Underlying Index when rebalanced. 

“The Horizons Marijuana Life Sciences Index ETF (HMMJ) was the first Marijuana ETF listed in the world. We launched that ETF shortly before cannabis was fully legalised in Canada,” says Hawkins. “We see a lot of similarities with the regulatory environment in the US to what we saw in Canada, three years ago. If the U.S. were to enact any type of federal legalisation, either medical or recreational, that would immediately make the US the largest federally approved cannabis market in the world. HMUS will give investors direct diversified access to this early stage sector which has the potential of future US regulatory change.”

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