Medical Cannabis Monthly Report | October

Medical Cannabis ETF Monthly Report: Key Takeaways

• President Joe Biden announced the pardon of all Americans convicted of small federal cannabis offences and requested the Department of Justice and of Health to review the classification of cannabis under federal laws. Although this pardon affects only a small number of convictions, since most happen at the state level, it sets precedence for deeper expungements and sets the US on a path of decriminalization through de-scheduling. [1]

• The above news follows rumours of the SAFE Banking Act coming into play after the mid-term elections with the US Senate becoming highly focused on passing incremental reform. The much-anticipated Cannabis Administration and Opportunities Act (CAOA) was met with a lack of enthusiasm once revealed in the summer and Senators are now trying to find a middle ground which brings in social equity provisions into the SAFE Banking Act which is focused on easing the operational elements of conducting cannabis and related businesses. [2]

• On the European front, German Finance Minister Christian Lidner has publicly stated support for recreational cannabis to be allowed in Germany starting in 2023. With many questions regarding how Germany is to move forward with their legalization program, support from one of the country’s top ministers has operators excited for the opening of the largest cannabis market in Europe.

Please note that all performance figures are showing net data. Past performance is not indicative of future performance and when you invest in ETFs, your capital is at risk.

Macro Outlook

The road to cannabis reform in the US has been very tough on investors and operators alike. An early look into Biden's presidency had investors supremely optimistic on cannabis reform occurring under the new Democrat regime and valuations quickly reached all-time highs in February 2021. However, political meandering meant that valuations in the sector dwindled over the months as Democrats stuck to a more comprehensive approach in favour of a business-friendly incremental approach.

Many months have passed with numerous attempts at reform running through Congress; this includes the SAFE Banking Act, the STATES Act, the CLIMB Act, the CAO Act, the MORE Act and many more. However, progress remained slow with Senate leadership trying to find a fine balance between social equity provisions and business friendly legislation. However, over the past few months we have written about and gotten more optimistic on an enhanced version of the SAFE Banking Act being tabled and passing the Senate in the upcoming lame duck session. Discussions have been mostly behind closed doors but reports of progress have been encouraging.

However, in a surprise announcement today, President Biden announced the expungement of all small-scale federal marijuana offences and a review of cannabis as a scheduled substance in the United States in a bid to gain popularity into the November midterm elections. The validation of cannabis reform from the top administrator in the country has led to a violent reaction for stock of cannabis and related businesses. This action opens to door for federal decriminalization as well as encourages near term business friendly reform which could potentially in the second bull market in US cannabis.

The price action could be a boon for medical cannabis and ancillary business verticals held within The Medical Cannabis and Wellness UCITS ETF (CBDX). With further clarification and setting of timelines we anticipate this to be a secular pivot in the cannabis industry rather than a one-time revaluation. There is potential to recognize a market opportunity of up to $80B in the US alone and such action would send shockwaves throughout the western world. We are closely watching for next steps but are optimistic that those who have long endured the pain of the cannabis trade will soon see the bigger thesis come to life. With a rough year to date performance of -53% for CBDX, we anticipate much of this drawdown to be quickly wiped away as capital flows back to a space that is back in favour. [4]

Please note that all performance figures are showing net data. Past performance is not a guarantee of future performance.

The Medical Cannabis and Wellness UCITS ETF Performance Table (As of 30.09.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30.09.2022. 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. 

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