Medical Cannabis Monthly Report | January

Cannabis ETF Monthly Report: Key Takeaways

Malta becomes first EU nation to legalize cannabis – the cultivation and personal use of cannabis is now legal in Malta as the Maltese parliament voted in favour of the reform in December. [1] The country hopes to curb drug trafficking trade and remove cannabis users from facing the criminal justice system. After the UN reclassified cannabis to recognize therapeutic uses last year, many European governments have now announced plans to establish regulated cannabis markets, most notable Germany, Switzerland and Luxembourg.

On the other hand, other European governments are taking a harsher stance for cannabis and hemp proliferations. It is reported that France will outlaw the sale of CBD flower in the country. [2] The decision comes amid a more comprehensive evaluation of CBD where the government is to now loosen the rules around the French CBD industry. The justification for banning the sale of flower is centered around the harmful impact of inhaling combustible organic substances. The French CBD industry is expected to total around 180M Euros in 2021 with about 1000 physical CBD stores in the country.

Pharmaceutical companies continue their exploration into the development of cannabinoids into drugs. In December, global pharmaceutical giant Pfizer, purchased Arena Pharmaceuticals in an all cash transaction worth about $6.7B. [3] One of Arena’s many strengths is a pipeline dedicated to cannabinoid therapeutics to treat diseases affecting the stomach and intestine. The transaction validates the emerging industry of pharmaceutical cannabinoids. More importantly, the acquisition provides a big boost to fund CBDX which held 12% of holdings in the company.

As the industry grows in Europe, the Canadians finally start losing some of the first mover advantage. Canadian industry leader Canopy Growth has sold its German business C3 Group to Dermapharm Holding. [4] C3 specialises in the development, production and marketing of natural and synthetic cannabinoids. As restrictions loosen around the cannabis industry, more mainstream businesses are starting to become involved in this growth vertical. Promising signs for an emerging German cannabis market.

With all this momentum, valuations in the cannabis space still remains depressed. The stock market has tied the valuations of cannabis directly to US federal reform, which continues to waver. The ancillary services industry has shown to be robust throughout this time however. Most recently, cannabis industry’s premier trade show and publications provider MJBiz has been acquired by Emerald Holding, a New York based events and media company fore $120M cash plus potential earnouts. [5] These ancillary service providers remain the best way to legally invest in the US cannabis industry as federal reform is still highly contested in congress.Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.

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

Macro Outlook

Whereas a cloud of doubt hovers over the immediate future of the US cannabis industry, the European industry seems to have finally shifted into second gear. After broader reform was approved at the UN and EU last year, Europeans are now taking charge in helping with the development of this nascent investment opportunity. Recently, we have seen adult-use reform approved in Malta and progress uptick in Germany, Luxembourg and Switzerland. Italy will hold a referendum on the issue next year as well.

These signs bode well for the future of the global cannabis industry. Record amounts of cannabis has been imported into the EU for sale in 2021 for the medical market. [6] The UK’s Foods Standard Agency is finally in a position to regulate the country’s CBD market. All of this as Canada struggles to right-size their industry and the US deals with the politics of industry and criminal reform. [7]

Despite the progress in Europe, the biggest opportunity in cannabis remains in the United States. The number of states where medical or adult-use cannabis is legal, continues to grow rapidly. In 2022, we expect the states of New Jersey, New York, and Rhode Island to be the newest entrants into the adult-use market. Initiatives in Ohio and Pennsylvania have also become promising with strong local political support. The best way to gain access to this growth before Federal reform remains within the ancillary services space which supports the development of the local industry.

The Fund has significant exposure to the ancillary services industry which is tied to the future of cannabis reform in the US as well as significant exposure to the pharmaceutical cannabinoids space which continues to attract global players in this evolving space. These two themes combined with the growth of the European opportunity remain the biggest investment themes for the fund into 2022.

Cannabis ETF Performance (as of 31.12.2021)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/12/2021
Performance 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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