Medical Cannabis | ESG Portfolios
Cannabis has been used as a
medicinal herb for over 5,000 years, but has only in the last decade come out
of the shadows and into the mainstream as a powerful tool in modern medicine as
Cannabis use and views surrounding the plant have become more liberalized. Changing
attitudes have fuelled the growth of a new legal industry of producers,
refiners, pharmaceutical manufacturers, equipment suppliers and specialist
technology providers; combining to form a global medical cannabis market
estimated to be worth north of $150B over the next 10- 15 years. 
With numerous medical studies
now in place and regulatory easing occurring globally, there are multiple positive
catalysts to push the industry forward. As interest in the sector rises, many
investors want to understand the ESG profile of the medical cannabis business
before they allocate medical cannabis ETFs.
Many funds rely on a
third-party data provider to provide an independent review of the companies they
hold and grade or score their compliance with ESG standards. Unfortunately,
data isn’t yet available for the medical cannabis sector given how new it is and
the companies involved are. As a result, investors have to make their own
views. In the case of looking at companies that have both medical and recreational
cannabis exposure, this can be even more complicated given the laws governing
the plant and operations are very fluid and change depending on the country.
Moreover, deeply embedded
social attitudes towards Cannabis are clouding the minds of some investors when
it comes to assessing the investment potential of the legal, regulated
medical-use cannabis industry, providing investors with a way to clearly delineate
the medical-use and adult-use Cannabis markets would assist in helping these
attitudes to evolve.
Examples are being set by
institutional investors, many of which have strong ESG investing credentials,
The Church of England Pension Fund 
and CALPERS 
are among a growing number of pension funds that have made allocations, even as
they dump tobacco and other ‘sin’ stocks from their portfolios.
ESG is ultimately a subjective
matter – different investors want different values embedded in their
portfolios, but at HANetf, we believe we have one of the best approaches to ESG
integration in a medical cannabis ETF- The Medical Cannabis and Wellness UCITS ETF (CBDX). With a strict and multi-tiered constituent review and
selection process, the methodology can help allay investor’s concerns about ESG
risks, particularly in relation to corporate governance and the social supply
Firstly, all constituents must
be listed on a major stock exchange in US or Canada and follow the same strict
exchange rules, reporting standards and tax and audit standards as any other
Additionally, the index
methodology and ongoing reviews screen out all companies engaged in adult-use, recreational
cannabis sales. In our screening process, any company that makes any sales of
THC on a recreational basis, regardless of the rules of the country that
company is operating in, is excluded.
What that leaves us with is a fund entirely consisting of companies that
while involved in the cannabis industry are focused on the medical applications
of the plant. An example of this would
be GW Pharma which has an FDA approved drug derived from the cannabis plant,
that is being sold globally to help with epilepsy.
Within ESG one of the more
powerful tools to add value has been focusing on the ‘G’ of governance. We expect to incorporate this even deeper into
our screening process as better data is made available for the sector and we
gather more information and history on the companies.
Where the fund does have
exposure to retail operations, it is entirely focused on the CBD wellness
side. We view this as more of a natural
medicine or health additive that as a society we are just beginning to understand.
The uses of CBDs can range from pain management, to sleep, to skin care and
many other benefits. These products are
sold throughout the world in respected pharmaceutical and beauty chains. As the world looks to distance itself from
harmful chemicals and additives, CBD can fill this void and provide a bridge.
Rules and regulations are
constantly changing in all sectors, but few are seeing so much change in a
short period as cannabis. Having a product that can offer exposure to the fast-growing
field of cannabis while avoiding the negative connotations that some associate
with the sector should have its benefits as it opens the door to a wider
investor base. The Medical Cannabis and Wellness ETF, Cannabis ETF ticker: CBDX, focusing on
medical cannabis and CBD products offers a solution.
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