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Medical Cannabis Monthly Report | July

 

  • 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

 

Cannabis ETF Performance Review

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.

 

Cannabis ETF (CBDX) Monthly Performance



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 

 

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