A Budding Opportunity for European Investors: The Investment Case for Medical Cannabis | CBDX

24 January 2020


Cannabis has been cultivated as a medicinal herb for more than 5,000 years. The earliest signs of its use as an herbal remedy appeared sometime around 2,500 BCE (1). The plant has also been used as a vehicle for spiritual enlightenment and for recreation. But only recently has it come out of the shadows and into the mainstream as a potentially powerful tool in modern medicine.

For most of modern history, the use of cannabis was widely prohibited throughout the western world. Within the last few decades, and especially in more recent years, use of cannabis and views surrounding the plant have become more liberalised, fuelling growth a legal industry. Several countries, including Germany,Italy and Denmark, have legalised cannabis for medical use (2). Many more are in the process of legalising cannabis for medical usage.

The growing number of jurisdictions with legal medical cannabis use has led to the creation of a legitimate, multi-faceted industry. The legal cannabis space includes not only growers and producers, but also service-oriented support companies, which provide specialised equipment and technology.

The Growing Opportunity

This growing industry naturally presents an opportunity for investors, equivalent or larger than investing in alcohol producers in the post-prohibition period.Many companies involved in the legal industry have issued shares for public trading on open exchanges. The number of public companies is now prolific enough to support a broad basket of cannabis-related securities. Following the broad legalisation of cannabis in Canada in 2018, the investable universe expanded rapidly, leading to the creation of exchange-traded funds focusing on the legal industry.

The 2019 sell-off in cannabis stocks has corrected lofty expectations to the extent where the stocks themselves were oversold and are once again showing value against their long-term growth and valuation targets. With numerous medical studies now in place and regulatory easing within sight, there are multiple positive catalysts to push the industry forward. 

But while North American investors are well serviced by ETFs targeting the legal cannabis sector, European investors are not……yet.

We believe there is a large opportunity to bring the first medical cannabis focused ETF in Europe, structured to meet current laws with the ability to evolve as the regulatory environment changes. HANetf has partnered with Purpose Investments, the leading manager in the space, to create The Medical Cannabis and Wellness UCITS ETF (CBDX), Europe’s first medical cannabis and wellness fund. The ETF provides a convenient and easy access to the legal cannabis industry for European institutional and retail investors.

The fund is comprised of constituents with significant business activities in the medical cannabis, hemp and CBD industries, such as producers and suppliers of legal medical cannabis, biotechnology companies that are engaged in research and development of cannabinoids and other legal tertiary companies.

Cannabis is on Everyone's Lips: Get to Know the Terminology


The class of chemical compounds that includes the primary components found in marijuana. Cannabinoids act on receptors in the brain, altering the release of neurotransmitters to produce psychoactive and therapeutic effects.

THC (Tetrahydrocannabinol)

The primary psychoactive chemical compound in marijuana, responsible for producing a euphoric high.

CBD (Cannabidiol)

The primary non-psychoactive chemical compound in marijuana, believed to be responsible for alleviating anxiety and producing other therapeutic eects.According to a report from the World Health Organization, “In humans, CBD exhibits no eects indicative of any abuse or dependence potential. To date, thereis no evidence of public health related problems associated with the use of pure CBD.” (3)


Any food or beverage that contains THC, CBD or a combination of both. Due to the way the body metabolises the chemicals in the stomach, the effects appear more slowly and can last much longer than they would if inhaled, which can produce more targeted therapeutic uses and outcomes.


A wide variety of products that contain extracted and concentrated versions of cannabinoids. This includes oils, waxes and other forms of the extracted chemicals which may be used to create edibles or other types of infusions for consumption.

Defining the Cannabis Market 

Flower, edibles, waxes, oils - there are several dimensions to the products offered in the cannabis industry as a whole, which can be narrowed down into three key genres.

1) Medical & Wellness: Products that focus on the well being of patients and consumers using cannabis for medicinal purposes. This included both products derived from cannabis, as well as hemp (CBD).

2) Recreational: Products that are intended for recreational uses, similar to how alcohol is consumed globally. Typical forms include but are not limited to flower or “bud”, extracts such as oils and waxes, beverages, as well as various synthetics.

3) Ancillary Services: Include products and services that support the production of the final product such as a bottling, machinery and fertilisers.

Under these three genres, the investable cannabis market can be broken down into 4 main segments:

1) Canadian Operators

With recreational Cannabis consumption federally legal, most operators in this market are vertically integrated, and a variation of the below business lines, with few operating exclusively in one segment of the value chain. These operations typical dispute under both a medical and recreational license, selling all types of products to its consumer base.

  • Cultivation: Cannabis cultivation is a term that refers to growing cannabis in a commercial facility. Cultivation can occur outdoors, but it is much more likely to be indoors in a hydroponic (soilless) set-up. These are colloquially known as “growers”.
  • Extraction: Extraction refers to the process of extracting or concentrating the most potent compounds from the plants, essentially removing the oil found in the trichomes “crystals” from the bud of the plant. The resulting products from the extraction process (the concentrates or extracts) are therefore a highly concentrated and potent form of THC and other cannabinoids. The extracted concentrates can be in the form of oils, pills, and other forms, and can also be used to make edibles like baked goods, candies, and infused beverages.
  • Retail Distribution: Retail distribution refers to the process of selling the cannabis directly to consumers, only in relation to the recreational market


2) US Multi-State-Operators (M.S.O) 

In the United States market, recreational cannabis is yet to be legalised at a federal level, however over 11 states and counting have bucked the trend and made it legal at a state level. Multi-state-operators (M.S.O) are companies which operate only in state legal jurisdictions in the medical and recreational cannabis market. At a federal level these companies are still considered to be operating illegally. Similar to a Canadian operator, they are integrated verticals, operating in the entire value chain.

3) US Hemp/CBD

Although recreational cannabis has not been federally legalised, under the 2018 Farm Bill, hemp has now because federally legal. Hemp (a cannabis plant that contains a very low amount of THC) has enabled the legal creation of extracts in the form of CBD, drumming up the business incentive for swaths of companies to enter the space.

US CBD Usage Trend: 2014-2022 (4) 


4) International Medical Companies

Outside of North America, the cannabis market continues to bud. With only two countries globally which have federally legalized recreational cannabis (Canada and Uruguay) the investable market outside of this are typically medical-only companies, and ancillary services. These companies are predominantly located in Australia, Israel, South America (such as Colombia) and the United Kingdom. In fact, the largest producer and exporter of medical-grade cannabis in the world is the United Kingdom, growing close to 100 metric tonnes a year. (5)

The Medical Market Remains a Frontier for Growth

With the global medical cannabis market estimated to be worth north of $150B (CAD) (6) over the next 10- 15 years, the Canadian experience in both the medical and recreational markets oers a proof-of-concept model for smart and sensible cannabis regulation that can be replicated and implemented in new markets moving forward.


Use of Cannabis for Medical Purposes

Scientific understanding of the uses of cannabis for medical purposes is still in its infancy. For most of modern history, scientists had been restricted in their ability to research cannabis and its constituent ingredients. However, with the growing wave of liberalisation, researchers are increasingly able to investigate and unlock the secrets of the plant.

Researchers delving into the medical uses of cannabis typically focus on CBD. While definitive results are still elusive at this point, preliminary and mid-stage research suggests that cannabis, and particularly CBD, has the potential to reduce anxiety, reduce inflammation and relieve pain and control nausea related to other treatments, such as chemotherapy. Additionally, it has been shown to relax tight muscles in patients with multiple sclerosis and stimulate appetite for those suffering from cancer and AIDS.

Medical cannabis is also used to treat a number of other conditions, although with less understanding of its benefits. These conditions include Alzheimer’s disease, Crohn’s disease, eating disorders, epilepsy, glaucoma, muscular disorders and mental health condition, such as post-traumatic stress disorder.Research into these areas is considered promising, although early.

One of the difficulties of understanding the efficacy of medical cannabis is the wide variety of ways to administer it. Medical cannabis can be consumed in multiple ways, including the most traditional method, smoking. It can also be inhaled through a device known as a vaporiser, which produces a vapor that does not contain combusted material from burning. Edibles, lotions and indigestible oils are also methods of delivery, each with its own time frames for onset and duration, in addition to differing effects.


A Budding Opportunity for European Investors

With Canada and the U.S. stealing the majority of the limelight in cannabis news, countries outside of North America often push the envelope in the shadows. Europe particularly has seen meaningful advances in both decriminalization and medical legalisation of cannabis.

As of January 2019, Europe has 28 countries with medical cannabis legalized in some form, and 20 of those have decriminalized the possession or personal consumption of small quantities.

The growth of the global medical cannabis market has particular importance for European businesses as countries like UK, Italy, Netherlands and Switzerland are regional leaders in the production and export of medical grade cannabis. In fact, the UK is the world’s largest single producer and exporter of medical grade cannabis, producing close to 100 tonnes a year. (8)


Untapped Growth Potential

While cannabis has been around for thousands of years, modern science is just beginning to scratch the surface of what is possible from a medical standpoint. A number of medical uses have already been discovered and studied extensively, with promise shown particularly for cancer, AIDS and multiple sclerosis patients. As views and laws surrounding cannabis continue to liberalize around the world, more scientific inquiry will follow.

THC and CBD are the two common chemical components when discussing cannabis. However, researchers have isolated 113 different cannabinoids, providing scientists with ample grounds for further exploration.

The landscape is not only ripe for further scientific discovery, but also for investors. Cannabis has, in essence, become a new sort of commodity. An entirely new industry and market has developed relatively quickly in the last decade from a plant that humans have been using for thousands of years. Financial backers no longer shy away from supporting legal cannabis companies. Cannabis is becoming mainstream and, in our view, has great potential to deliver long-lasting social, medical, industrial and economic effects.

Most Researched Cannabinoids: Effects and Applications


Investing in the Green Gold Rush: The Medical Cannabis and Wellness UCITS ETF (CBDX)

In January 2020, HANetf and Purpose Investments launched the The Medical Cannabis and Wellness UCITS ETF (CBDX), an UCITS compliant ETF domiciled in Ireland. The fund provides physical replication of the Medical Cannabis and Wellness Equity Index, a rules-based benchmark capturing companies involved in the legal medical cannabis, hemp and CBD industry.

Medical Cannabis ETF Advantages: 

  • Distinctive: As the first product of its kind in Europe, CBDX provides investors with access to a unique new sector
  • Transparent, modern approach: CBDX follows a rules-based free float weighted index ensuring only investible companies are included in the ETF
  • Diversified: In a single trade, CBDX provides exposure to a basket of companies from US and Canada with high exposure to the medical cannabis theme
  • Governance: CBDX embeds multiple levels of governance and contains constituents engaged in legal, licensed and regulated activities
  • Accessible: Listed on major European exchanges and available on wide variety of execution and broker platforms
  • Legal analysis: During the construction of this ETF, there has been significantly more legal analysis across multiple jurisdictions than would occur during the typical ETF product development process. Providing reassurance for investors that the fund is in compliance with all relevant local laws and listing standards.


Key Risks:

  • The value of equities and equity-related securities can be affected by daily stock and currency market movements
  • Investors' capital is fully at risk and investors may not get back the amount originally invested
  • Exchange rate fluctuations could have a negative or positive effect on returns


CBDX Features:

- The ETF comprises securities with significant business activities in the medical cannabis, hemp and CBD industries

  • Producers and suppliers of medical cannabis
  • Biotech companies involved in the research and development of cannabinoids
  • Hydroponics and equipment suppliers
  • Companies leasing property to medical cannabis producers
  • Companies with an investment focus on the medical cannabis sector
  • Companies providing software solutions to the medical cannabis industry
  • Providers of medical cannabis consumer products 


- Full physical replication 

- Constituents are capped at 10% during quarterly rebalances to ensure diversification 

- Multiple currency lines - GBP, USD and EUR


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