A frothy cannabis market is pushing Horizons Marijuana Life Sciences Index ETF (HMMJ.TO) beyond $1 Billion CAD in assets under administration – a first for any Cannabis ETF.
Units of HMMJ.TO ETF, have gained an astonishing 43% in the waning summer months, and an even more impressive 124% since its April 2017 inception. Weed stocks trading on North American exchanges have enjoyed sharp increases this year, particularly in Canada, a country whose federal legalization is set to deploy in October.
Investor uncertainty in selecting stocks in this nascent industry is an important factor driving the flow of funds to the EFT, according to Steve Hawkins, CEO of Horizons ETFs. “While there are clearly leaders in the marijuana equity sector,” he says, “nobody knows for sure which companies will truly be successful over the long term or even be swallowed-up.”
Some analysts and investors have questioned whether cannabis stocks are overvalued. The bears in the market have not slowed the market growth, however, and shares have continued to surge higher since September. In August, the ETF reported an inflow of funds of more than $12 million CAD.
There may be more to the market than just pot enthusiasts, which is also helping to hold valuations steady and helping them rise, as alcoholic beverage manufacturers and holding companies are invested heavily in the industry. Constellation Brands, which manufactures Corona partnered with Canadian cannabis producer Canopy Growth on a $4 billion deal to develop and market beverages with cannabis infusions. Canopy Growth stock is the largest single holding by the HMMJ fund. Other alcoholic beverage companies, including Molson-Coors, are also looking to step in. These developments have many thinking this market is still green enough to grow.