Last month, it looked like the cannabis “green rush” was taking a big step forward when the first-ever exchange-traded fund (ETF) hit the Toronto Stock Exchange. Now, a little more than a month later, investors in the ETF are losing money.
Cannabis ETF Is Losing Money
The announcement of the Horizons Medical Marijuana Life Sciences ETF was a big deal. For many, it was an important development in the growing legal cannabis industry. For others, it was a chance to get in on the huge profits the industry is producing.
The ETF is made up of stocks in 16 medical marijuana companies. It also includes holdings in other companies that are indirectly related to the cannabis industry.
As with all other ETFs, the idea is to give investors a way to diversify their investments. The benefit is that you can get holdings in a number of different companies but you only have to purchase a single ETF.
Theoretically, investing in an ETF helps you spread out your risk. It can also help maximize your chances of turning a profit.
Unfortunately, things haven’t been going so well for the weed ETF. In fact, since it hit the market last month shares have lost more than four percent. The fund hit its lowest point on May 9.
A Surprise Downturn
The downturn has been a bit of a surprise. That’s mostly because the cannabis industry as a whole has been growing so rapidly.
The legal weed industry in North America grew by 34 percent between 2015 and 2016. Last year, consumers spent $6.7 billion on legal weed and legal cannabis products.
According to analysts at ArcView, the rapid growth of the industry is expected to continue well into the future. In fact, the group’s most recent report estimated that the legal cannabis industry would hi $22.6 billion in 2021.
“Very few consumer industry categories reach $5 billion in annual spending and then post anything like 25% compound annual growth across the following five years,” the report said.
Given all this, news that people could now invest in a cannabis ETF was met with a lot of excitement. But so far, hopes of quick returns have not panned out.
Although the ETF is losing money right now, it is probably too early to reach any strong conclusions. Projections remain positive for the future of the cannabis industry.
That’s mostly because the entire market is expected to see a lot of growth.
Last fall, four new U.S. states voted to legalize recreational weed. Those states were California, Nevada, Massachusetts, and Maine. Similarly, voters in Florida, Arkansas, Montana, and North Dakota approved new medical marijuana laws.
Every time a state legalizes medical or recreational weed, it opens up new markets. And as those markets open, the industry as a whole benefits.
But growth isn’t happening only in the U.S. This spring saw some important activity in Canada. Last month, the Canadian government passed a bill that will make cannabis legal across the entire country by 2018.
According to the bill, the government will regulate the market. Adults 18 and over will be allowed to purchase weed from licensed vendors and can possess up to 30 grams. It will also let adults grow as many as four cannabis plants per household.
Combining the activity in both the U.S. and Canada, it seems likely that the cannabis industry will continue to grow. This could be promising for cannabis ETFs, despite the slow start we’re seeing right now.