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Innovation Shares’ cannabis ETF gives access to vibrant industry

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Data from legal marijuana experts Arcview reveals that worldwide spending on cannabis exceeded USD12 billion in 2018, with a projection that this will increase to USD31.3 billion by 2022, an annual compounded growth rate of 26.7 per cent.

A number of ETFs have joined in the fun and the latest is The Cannabis ETF (THCX), launched in July by Innovation Shares ETFs and now with assets of over USD13 million and growing, and options available for those who want to trade in the future of this vibrant industry.

 
Innovation Shares ETFs’ managing director Matt Markiewicz (pictured) explains that THCX joins KOIN, their blockchain ETF. Cannabis investment is proving easier to sell to financial advisers and their clients, he says.
 
“Firstly, this gives investors the opportunity of investing in a theme that is very familiar to a lot of people from the recreational aspect,” Markiewicz says. “It’s a lot harder to describe blockchain. This story is a lot easier for financial advisers to communicate to their clients.”
 
This new sector, which was illicit until recently, particularly in North America, is becoming more publicly accepted as the move to legalise it continues.
 
Currently only Uruguay and Canada allow adult use cannabis, but the effect of this on Canada’s capital markets has been significant.
“There has been a huge increase in capital market activity,” Markiewicz says. “Views are changing and becoming more accepting of companies that are part of the cannabis ecosystem.”
The capital market effect has been seen in IPOs, uplistings (when a company moves up to a more senior exchange) and reverse takeovers.
Innovation Shares’ cannabis index has 35 stocks, currently 18 of which are Canadian licensed producers (LPs) and companies that are legally growing and distributing cannabis in Canada.
 
It is the infrastructure behind the production of marijuana that also lies within the THCX ETF.
“We have segued into the several ancillary companies that lie behind the industry,” Markiewicz says, citing companies such as Cree, which produces LED lights that burn cooler and use less electricity, or PerkinElmer which provides testing and analytics for the drug.
It’s no coincidence that Canada has low energy prices and has experienced huge growth in marijuana production. Marijuana is a delicate crop that needs energy greedy heat and light.
“It’s been a warm response and very positive around our methodologies,” Markiewicz says.
This ETF is rebalanced monthly and no stock can be over 8 per cent of the index at the rebalance. There is also a minimum market cap for inclusion in the index of USD100 million, to try and smooth out the volatility that exists in the sector and to include new entrants once they meet the eligibility criteria.
“Cannabis has revitalised the capital markets in Canada,” Markiewicz says. “Energy has been a sideways or even bear market for a while, and natural resources have trailed along with it but cannabis has really changed the growth outlook for a lot of brokers, dealers and investment houses in Canada. It has rejuvenated much of the financial services industry there.”
 

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