Medical Cannabis Monthly Report | May

Learn more about the Cannabis ETF

• With the Democrats in the driving seat, legislative leaders have made clear that cannabis reform will be a priority item for 2021       
• The total addressable market for the US continues to increase as additional states adopt cannabis reform        
• In the quarterly rebalance, the fund added 14 securities to bring the total number of securities held to 34. The new additions included seven companies operating in the ancillary services sector, three securities in each of the medical and pharmaceutical sectors, and one single holding in the CBD Wellness sector

The Cannabis ETF Performance

Past performance is no guarantee of future performance. Source: Bloomberg, HANetf *12 Month figures based on 30.04.20-30.04.21

Performance Review

With global equity markets trying to find solid footing in a rapidly changing environment, the risk-on characteristics of the cannabis industry are dominating price action again. As uncertainty looms over the near-term actions of central bankers, investors are finding it difficult to value growth equities in a scenario of ever-changing interest rate assumptions. By taking a step back and focusing on the fundamentals, the potential of the cannabis industry remains clear. An opportunity for cash-strapped governments to collect tax revenues on sales, the prospects of job creation in a high-wage low skill industry, and a possible plethora of better healthcare opportunities are all demanding attention around the globe. With the U.S. rollout improving on a proliferation model laid out by Canada, we’re seeing multiple European jurisdictions discuss and weigh the benefits of both medical and adult-use cannabis.

So even though short-term performance of -6.1% might seem concerning, it’s important to contextualize fund performance as +27% year-to-date and over 80% since inception in January of 2020. The largest detractor for the month was the ‘ancillary services’ sector, which has been the best legal investment to capitalize on the U.S. proliferation in the past 24 months. Additionally, the Fund reduced single name risks in the portfolio via a rebalance in February, bringing total investment to thirty-four. Increased diversification for a broad-based exposure should help lower the volatility of the portfolio moving forward.  

Past performance is no guarantee of future performance. Source of all data: Purpose Investments.

The Medical Cannabis and Wellness UCITS ETF Performance Table

As of 30.04.2021

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 30/04/21  

Industry News

British American Tobacco (BAT) has entered the cannabis arena following the footsteps of rival Altria Group. The company chose Canada’s Organigram (OGI) as a partner by investing US$175M into a strategic collaboration with a focus on research and product development. Stated in their intentions, the company is less focused on the Canadian market but rather laying the groundwork to capitalize on the growing global marketplace for cannabinoid-based products and delivery systems. The transaction displays further acceptance of cannabis as an industry with wider and deeper potential than the US and Canada alone.

U.S. cannabis giant Curaleaf (CURA) has taken its opportunity and jumped into the European market with the acquisition of Europe’s leading medical marijuana company, EMMAC Life Sciences in a transaction worth up to US$343M. The now closed transaction provides Curaleaf a comprehensive European supply chain serving eight European markets including United Kingdom, Germany, Italy, Spain and Portugal. After 3+ years of focusing capital allocation to the U.S., the deal marks a significant turning point as cannabis companies look to develop roots in Europe as the next frontier.

After adding hemp derived-CBD to the list of permissible substances of use in cosmetic and skincare in February, the EU’s key market regulator for trade has now approved hemp-derived CBG in cosmetic and skin care lines as well, providing another victory to the hemp industry and further normalizing the use of cannabis/hemp derived materials into everyday products. Product development will be key in any future success of cannabinoids as a manufacturing ingredient, and these steps pave the way for the development of this market vertical.

GW Pharma achieved a monumental milestone for the pharmaceutical cannabinoids industry as it was acquired by a mainstream pharmaceutical, Jazz in February. However, they company has further helped validate the industry by winning the Queen’s Award for Enterprise 2021 in the Innovation category. A prestigious honour as the company has spent over 20 years and GBP1.3B developing its revolutionary drugs, furthering the mainstream acceptance of cannabinoids for medicinal purposes.

Outlook

In the near term, markets are still trying to decipher how central bank policies can change in the near future as we look towards the end of the pandemic. With global vaccine supply improving and North America and Europe vaccinating quickly and looking for a broader re-open, investors are concerned of impending inflation and therefore another possible taper tantrum. Volatility remains elevated but it is important to keep the long-term picture in mind when it comes to cannabis proliferation. There continue to be growing possibilities for the industry as further work is put into the product and its regulation. A recent balance sheet strengthening will help put in a valuation floor for the industry and regulatory reforms in the near term will provide upwards catalysts.