Cannabis Monthly Report | December

Cannabis ETF Monthly Report: Key Takeaways

• With a new government coming to power in Germany, the incoming coalition has agreed to legalise the sales of cannabis for recreational purposes. [1] It will take some time to develop the framework into law but Germany could well become the largest federally legal adult-use cannabis market in the world in the near future. The primary motivation behind the bill is to prioritize health and safety of cannabis consumers by tackling the illicit market and creating a robust framework for access to regulated cannabis. It is estimated that 4.6M Germans are consumers of cannabis with current annual sales estimated at 4.7B Euros. This marks the first wide scale potential cannabis reform in Europe and opens the doors for many European countries to follow suit.
• In addition to cannabis reform, there is much debate about the development of the German hemp industry as a strategy to capture CO2 from the atmosphere in a push to combat climate change. [2] The incoming coalition is supportive that hemp should not be regulated by the country’s drug laws. Numerous studies have suggested that hemp can be more effective than trees at converting carbon dioxide to biomass and can be used to replace fibreglass composites, aluminium, and bioplastics.
• A few major politicians in Europe have shown support for adult-use cannabis as French ex-President Francois Hollande and UK’s ex-Deputy Prime Minister Nick Clegg have both made abundantly clear that their respective nations have much to gain from the legalization of cannabis. [3] Both politicians made the point that repressive policies are more detrimental than occasional drug use. The conversation over cannabis reform is progressing in these countries as pilot medical programs continue to scale. Seven months into inception, the French pilot program has now enrolled 1000 patients of the 3000 person target and Project Twenty21 in the UK approaches 1800 patients. [4]
• In the United States, the overhang of slow federal progress continues to punish valuations. [5] Investors are pushed out of exposures in the face of strong opportunity cost as the broad market is chugging along to new all time highs. The question still remains of when and not if with robust state level growth. Now the politicians just need to agree on what the next steps to cannabis reform should look like.
• The Fund CBDX was negative for the month of November with weak performance from all sub-sectors along with the bio-tech space which lagged in the month. European dialogue is now turning out to be very interesting with Germany well positioned for reform and Italy putting the question on a referendum next year. We continue to look for opportunities to invest in these spaces as operators look to jump from the private the public spheres.

Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.

Macro Outlook

As the US opportunity stumbles with the help of charged politicians, the European opportunity seems to be racing along. Germany could become the largest federally legal cannabis market in the world in coming years. In addition to cannabis, the question of hemp reform is picking up steam to become integral in the conversation about combating climate change. The cannabis experiments have proven to be successful in Canada and multiple US states and are now taking hold in Europe where there is a high appetite to combat the illicit market and clamp down on the drug trade.

On the medical side, we continue to see progress in the underlying science and the pilot programs initiated in many countries that are trying to understand how to build better medical use frameworks.

The US opportunity has stumbled in 2021, with no reform apparent in the immediate term but all sights set towards the mid-term elections of 2022. Both Democrats and Republicans now better understand the requirements for cannabis proliferation and are working on a comprehensive approach to cannabis reform. [6] We are optimistic of the sector’s outlook in 2022 as we see discounted valuations and outsized growth. There are multiple routes for regulatory overhang to be navigated in the near term and although change has been slow, we are encouraged by the correct direction of the inevitable.

Cannabis ETF Performance (As of 30.11.2021)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/11/2021Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Please note that all performance figures are showing net data.

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