- Ancillary businesses have seen massive demand as a high growth
sector of the economy
- The
sector as a whole experienced similar fate to other high-growth verticals and
has come to even outperform broader market indices such as the S&P 500 and
the FTSE 100
As the first half of the year concludes, the rear-view mirror shows a
great test of resilience for nascent industries in high growth verticals,
cannabis in this case. The sector as a whole experienced similar fate to other
high-growth verticals and has come to even outperform broader market indices such as the
S&P 500 and the FTSE 100. The underlying problem caused by the pandemic
is the disruption of business as many industries experiences a stop in earnings
with mandated shutdowns. Falling under the umbrella of medical services, most
of the cannabis sector remained unaffected and continues with jobs and earnings
growth.
Within underlying
sub-sectors, there is differentiation of performance. Ancillary services
combined for the strongest performance as companies with arms-length businesses
to cannabis experience excess demand from investors in anticipation of
progressive cannabis legislations in the US.
Pharmaceutical
cannabinoids found a boost under the umbrella of healthcare and maintained
strong upsides in valuation as the healthcare sector works overtime in an
attempt to heal the world. There are few public companies operating in the CBD
wellness space and their immediate shedding of excesses in response to business
slowdown has stabilised valuations. Second quarter earnings results will
provide us with a better idea of their earnings growth in times of duress,
especially in retail.
Lastly, is the
medical cannabis sub-sector which experienced difficulty operating in a
capital-intensive industry with profitability still a promise of tomorrow. The
silver lining here is the rationalisation of industry participants which will
consolidate future sales on the basis of more reliable infrastructure.
|
June
|
The Medical Cannabis and Wellness Equity Index (NTR)
|
-0.29%
|
Current
performance is no guarantee of future performance.
Source: Bloomberg/HANetf
Sub-Theme Performance (since fund inception)
Sub-sector
|
|
Average Return
|
Ancillary
|
|
29.3%
|
CBD
|
|
13.8%
|
Pharmaceutical
|
|
-13.8%
|
Medical
|
|
-62.2%
|
CBDX
|
|
0.5%
|
Past performance is no guarantee of future performance.
Performance since fund inception on Jan 9th, 2020
Source:
Bloomberg. Data
as of 30/06/20
Medical Cannabis and Wellness
Equity Index (NTR) Performance and
Cannabis ETF (CBDX)
Total Return NAV to Date (up to 30/06/2020)
|
1M
|
3M
|
6M
|
YTD
|
12M
|
Since Inception
|
The Medical Cannabis and Wellness UCITS ETF (Acc)
|
-0.24%
|
33.80%
|
-
|
-
|
-
|
0.49%
|
Medical Cannabis and Wellness Equity Index (NTR)
|
-0.29%
|
33.87%
|
-0.92%
|
-0.92%
|
-35.94%
|
0.00%
|
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 30/06/20
Industry News
Under current regulations it is difficult to
measure the appetite for cannabis investments in the United States. Because of
their inability to invest in US cannabis, US investors have found the next best
associated growth vertical to capitalise on this opportunity. Ancillary
businesses have seen massive demand as a high growth sector of the economy.
Despite the current climate we have seen large equity capital financings close
for ancillary plays including Industrial Innovative Properties Ltd (IIPR – a
leading cannabis greenhouse REIT) and GrowGeneration (GRWG – cannabis hydroponics
supplier). Both these financings were completed in excess of their original
size and anecdotally were 5x and 3x oversubscribed respectively. These
anecdotes speak to the pent-up demand for growth stocks which is currently
unavailable to many investors.
British e-commerce website AlphaGreen.io
published an interesting survey in June with a large cohort of 5000
respondents. A key insight identified was that the biggest issue facing
cannabis in the UK is confusion regarding the differences between adult-use
cannabis, medical cannabis and CBD for wellness. Britain and much of Europe are
still in early phases of cannabis education with consumers and physicians
alike. Additionally, a majority of survey respondents were also specific in
describing their use of CBD with pain management, insomnia and anxiety relief
the top answers. In our recent video found here, we breakdown the particulars
of medical cannabis and talk to Khiron Life Sciences (KHRN) about Britain’s
ambitious Project Twenty21.
Outlook
The second half of the
year has been nicely setup for some major catalysts on a macro and company
specific level. On a macro basis, the key market of US becomes a talking point
into the 2020 elections. With the Democrats using either of the SAFE and STATES
Acts as a bargaining tool, we can see long-term support of both bills and an
eventual strengthening of medical cannabis businesses in the US. In addition to
that, multiple portfolio names continue to commercialise their medical cannabis
and CBD wellness strategies as key markets and research projects come online.
Constituent News
GW Pharmaceuticals (GWPH) set ambitious goals to further their position as the leading
cannabinoid platform for the acceptance of cannabis as an active pharmaceutical
ingredient (API). To target the treatment of spasticity caused by Multiple
Sclerosis, the company announced the simultaneous pursuit of five phase 3
trials to pursue commercialization of their second pharmaceutical drug in the
United States. Three similar trials of Nabiximols have already been
successfully completed outside of the US. The company indicated that commercialization
could be possible with success of any of these trials, which we think could add
many hundreds of millions of dollars to their peak sales. Development of this
second FDA approved pharmaceutical cannabinoid, GWPH sets themselves a great
platform to pursue their development pipeline.
Industrial Innovative Properties (IIPR) launched
their second equity financing this year alone as the company quickly scales
their greenhouse properties footprint. The size of the initial offering was
approximately US $150M but was quickly upsized and completed at over US $250M.
To significantly strengthen the treasury chest amidst a global crisis speaks to
the company’s great ability to execute their business plan. We see this as a
function of good execution but also the pent-up demand of US investors to seek
the secular growth vertical of medical cannabis.
CBDX Medical Cannabis ETF -Top 10 Constituents
|
Weight
|
Amyris Inc
|
11.48%
|
Corbus Pharmaceuticals Holding
|
11.28%
|
Innovative Industrial Properti
|
10.89%
|
Cara Therapeutics Inc
|
10.81%
|
GW Pharmaceuticals PLC
|
10.03%
|
Scotts Miracle-Gro Co/The
|
9.46%
|
GrowGeneration Corp
|
8.14%
|
Charlottes Web Holdings Inc
|
7.09%
|
New Age Beverages Corp
|
5.69%
|
22nd Century Group Inc
|
5.28%
|
Region Breakdown
|
Weight
|
US
|
100.00%
|
CA
|
0.00%
|
Source: Bloomberg / HANetf. Data as of 30/06/20
Fund Details
The Medical Cannabis and Wellness UCITS ETF, is a UCITS compliant Exchange Traded Fund domiciled in Ireland.
The fund tracks a rules-based Medical Cannabis and Wellness Equity Index from Solactive, consisting of publicly listed companies conducting legal business activities across nine thematic sub-sectors in the medical cannabis, hemp and CBD industries.
The fund seeks to provide targeted exposure to the rapidly expanding legal medical cannabis industry that is set for further growth as more countries legalise cannabis for medical use.
Please remember that the value of your investment may go down as well as up and past performance is no indication of future performance.
Exchange |
BB Code |
RIC |
ISIN |
Currency |
Income |
London Stock Exchange |
CBDX LN |
CBDX.L |
IE00BG5J1M21
|
USD |
Acc |
London Stock Exchange |
CBDP LN |
CBDP.L |
IE00BG5J1M21 |
GBP |
Acc |
Xetra |
CBSX GY |
CBSX.DE |
DE000A2PPQ08 |
EUR |
Acc |
Click here to download: Monthly Cannabis Market Report