Let's face it, everyone is interested in what's going on in the marijuana industry. Even if people aren't interested in participating in the consumption of cannabis, many are interested in investing in the rapid growth areas within the legal marijuana industry.
As the number of companies operating in the space continues to balloon at a rapid rate, it can be difficult for the average investor to pick out individual winners and losers.
On Wednesday, April 5th the Horizons Medical Marijuana Life Sciences ETF (TSX:HMMJ) began trading on the TSX. HMMJ is the first ever ETF offing investors direct exposure to a basket of cannabis related companies in Canada and the United States.
The Horizons Medical Marijuana Life Sciences ETF seeks to track the Solactive North American Medical Marijuana Index, giving investors in HMMJ exposure to 16 of the top cannabis companies in North America.
So many investors in the United States have been reading about this ETF, but they are unable to invest in it due to broker restrictions and more. Just because investors can't access the ETF doesn't mean they can't invest in the underlying companies!
Component Cannabis Companies
The North American Medical Marijuana Index tracks a diversified basket of companies in and around the cannabis industry. Composed of companies ranging from Canadian licensed producers and late-stage Licensed Producer applicants all the way to cannabinoid pharmaceutical developers and agricultural technology companies.
According to the index's website:
A company is deemed to be eligible for inclusion in the index by the Index Provider if the company is a producer and/or supplier of medical marijuana and/or medical cannabis, biotechnology companies that are engaged in research and development of cannabinoids, companies that offer hydroponics supplies and equipment clearly aiming to increase efficiency in marijuana cultivation and companies mainly engaged in leasing property to medical-use cannabis growers.
The cannabis companies that make up the North American Medical Marijuana Index are as follows:
Aphria Inc. (OTCQB:APHQF)
Aurora Cannabis Inc. (OTCQX:ACBFF)
CannaRoyalty Corp. (OTCQX:CNNRF)
CanniMed Therapeutics Inc. (OTC:CMMDF)
Canopy Growth Corp. (TWMJF)
Cronos Group Inc. (PRMCF)
Emblem Corp. (OTCQX:EMMBF)
Emerald Health Therapeutics (TBQBF)
GW Pharmaceuticals (NASDAQ:GWPH)
International Cannabis Corp. (OTC:ICCLF)
Insys Therapeutics Inc. (NASDAQ:INSY)
Maple Leaf Green World Inc. (OTCQX:MGWFF)
Organigram Holdings Inc. (OTCQX:OGRMF)
Scotts Miracle-Gro (NYSE:SMG)
Supreme Pharmaceuticals Inc. (OTCQX:SPRWF)
Zynerba Pharmaceuticals Inc. (NASDAQ:ZYNE)
Investing in the Basket vs. Individual Companies
This article was meant to help investors utilize the diversified basket approach to investing in the cannabis sector.
On the other hand, those trying to pick individual companies out of the basket should be sure to conduct ample due diligence first and make sure your risk profile and time horizon are in-line with that of the company.
For instance, some of the aforementioned component companies have major stakes in late-stage applicants to become licensed producers of medical cannabis under Health Canada's ACMPR process. This makes for a great upside if Health Canada gives them the green light or if they are acquired, but offers potential for downside if the application were to have issues.
For investors who want some exposure to this green rush potential found in companies like Beleave, but also want to buy into the strength and resilience of companies like Scotts, replicating or slightly modifying the North American Medical Marijuana Index is the way to go.
First we'll start by replicating the North American Medical Marijuana Index for those who want to closely track the newly launched ETF. The index's component companies (in alphabetical order) and weights as of the close on April 17th are as follows:
|Emerald Health Therapeutics||15.108131||2.26%|
|Maple Leaf Green World||27.399963||1.71%|
In order to replicate the performance of the North American Medical Marijuana Index, one would need to purchase each individual company in its relative weighting listed above. This could be a complicated and confusing option, so another option is to equal-weight the index components. Equal-weighted indices are quite common along with market-cap. weighted indices.
In order to create your own equal-weighted basket of the cannabis companies above, one would just need to put equivalent dollar amounts into each company and re-balance that on a periodic basis.
We wanted to clear up some of our most commonly asked questions as of late regarding which companies are included in the new ETF, and with what weighting.
The 16 component cannabis companies are a mix of some of the most prominent as well as some of the up and coming names in the space. This list of companies can be used to either replicate the ETF as a diversified basket of cannabis companies, or it can be used as a list of companies to research further.
Regardless of if you buy the ETF directly, replicate the basket, or buy into a modified equal-weight version of the basket, many of these cannabis companies are sure to benefit from Canada's recreational legalization measures.
Be sure to follow us and stay tuned for more ongoing coverage of these cannabis companies.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.