Key Takeaways
- Pharmaceutical cannabis is closely tied to the healthcare sector
and in recent months valuations for many of these companies have jumped as the
market looks for a pharmaceutical solution to the global pandemic
- Preliminary
research has shown that medical cannabis could help prevent contracting
Covid-19
- 57% of
pet speciality stores in the US are now selling CBD products
Performance Review
May marked another
strong month of recovery for the cannabis sector as investors measured the long-term
growth potential of cannabis against a significant decline in valuations. In
the face of recessive markets, cannabis is one of the only sectors where earnings
are expected to grow over the coming years vs catching up to the highs set in
2019. This secular growth is starting to resonate with an increasing investor
base, which has meant that since launch in early January, the Medical Cannabis
& Wellness UCITS ETF (CBDX) has now provided similar returns to the NASDAQ.
We have further
refined our investment verticals to differentiate between the medical and
pharmaceutical cannabis. Pharmaceutical cannabis is closely tied to the
healthcare sector and in recent months valuations for many of these companies
have jumped as the market looks for a pharmaceutical solution
to the global pandemic. Medical cannabis operators
on the other hand just went through providing fiscal updates with sequential
increases in industry earnings across most jurisdictions. The notable exception
here is Germany, where demand has stayed steady but distribution hurdles remain
and obstacle to growth. Those operating in the CBD wellness space have also
seen a significant increase in sales for nutraceutical health as consumers
looks to their immune systems. And lastly, the ancillary names in the portfolio
continued to post increase in revenues in-line with medical cannabis however
saw an outsize increase in multiple appreciation as those barred from investing
in the sector directly pursue exposure.
Medical Cannabis and Wellness
Equity Index (NTR) Performance
| |
1M |
3M |
6M |
YTD |
12M |
Since Inception |
| The Medical Cannabis and Wellness UCITS ETF (Acc) |
15.19% |
11.21% |
- |
- |
- |
0.73% |
| The Medical Cannabis and Wellness Equity Index (NTR) |
15.25% |
10.95% |
-7.04% |
0.63% |
-31.43% |
0.29% |
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. Source: Bloomberg / HANetf. Data as of 31/05/20
Industry News | Macro Developments
A preliminary research study at the University
of Lethbridge in Canada1 has shown that medical
cannabis could help prevent contracting Covid-19.
Certain cannabis extracts could potentially work together with proteins to
block key gateway paths for Covid-19 to enter the human body. This creates
potential for the treatment to become useful in helping prevent the spread of
the disease. Although early to make any conclusions, this highlights the myriad
of pharmaceutical possibility which could come from further study of
cannabinoids which have been kept away from laboratories for decades.
In the US, a key vertical experiencing exponential
growth in distribution and sales has been CBD for pets. A December 2019 Nielsen
study2 shows that 57% of pet
specialty stores in the US are now selling CBD products, even
as the U.S. Food and Drug Administration (FDA) has yet to provide guidelines on
CBD for animal consumption. Pet parents are looking to CBD to help with pain,
anxiety, stress and arthritis for their four-legged companions. A large reason
for this has been awareness in veterinarians of CBD products has been greater
vs their physician counterparts. Many animals share the same endo-cannabinoid
systems as humans, responsible for regulating and balancing many processes in
the body, including immune response.
Outlook
Other than cementing the
status of medical cannabis as an ‘essential service’, the global pandemic has
also brought the theme of secular growth back to investor attention. In an
environment where earnings across most sectors are expected to suffer
foreseeably, we believe medical cannabis and CBD wellness sectors are
expected to continue an earnings expansion. Coupled with the
multiple expansion we observe in the ancillary and pharmaceutical industries,
we find even more confidence in our long-term views for industry growth and
eventual broad embrace.
Constituent News
Innovative Industrial Properties (NASDAQ:
IIPR) completed an upsized public offering of US$100M in late May to invest in
specialised real estate assets that support the regulated cannabis cultivation
and processing industry. As many investors experience difficulty in allocating
directly to the medical cannabis business in the US (due to compliance
reasons), operators have found an innovative way to finance large
infrastructure projects via sale-and-leaseback agreements with the likes of
IIPR and their peers. Although major banking and financing reform for the
industry remains a hot topic with legislature, the industry continues to find
unique avenues of funding to get a head-start on this investment opportunity.
Khiron Life Sciences Corp (KHRN)
recorded receipt of its first medical cannabis prescriptions for patients
participating in Project Twenty21 in the United Kingdom (UK). Khiron branded
medical cannabis is now available for prescription from doctors and clinics
participating in the program. The program aims to enrol 20,000 patients by the
end of 2021, creating the largest body of evidence for the effectiveness and
tolerability of medical cannabis, with an aim to demonstrate to policymakers
that medical cannabis should be widely available in the UK where an estimated
1.4m people are using ‘street cannabis’ to treat medically diagnosed chronic
health conditions.
Top 10 Constituents
|
Weight
|
|
Corbus Pharmaceuticals
Holding
|
14.19%
|
|
Scotts Miracle-Gro Co/The
|
12.16%
|
|
GW Pharmaceuticals PLC
|
10.81%
|
|
Cara Therapeutics Inc
|
9.52%
|
|
Amyris Inc
|
9.27%
|
|
Innovative Industrial
Properti
|
8.08%
|
|
Charlottes Web Holdings Inc
|
8.06%
|
|
GrowGeneration Corp
|
6.25%
|
|
Zynerba Pharmaceuticals Inc
|
4.23%
|
|
22nd Century Group Inc
|
3.82%
|
CBDX Fund News
Recent Rebalance: 29th May 2020 - One new security added to CBDX:
- New Age Beverages
The next re-balance will take place on 31st August
2020
CBDX listed on SIX Swiss Exchange on 2nd June 2020
Learn more about CBDX: