Horizon's Medical Marijuana (HMMJ.TO)

Horizons did a good job on marketing by coming up with this ETF. Marijuana will probably do very, very well. Specialty ETF’s tend to be expensive. The management expense ratio on this one is around 70 or 75 basis points, which is kind of a premium. On something like this he would be very tempted to just buy individual stocks.

A lot of these stocks are very small and not making any money. There is some good stuff in this, but there is some flaky stuff as well. If you buy, don’t overload.

Something he is not looking at closely. The rise in marijuana stocks is new, and reminds him a lot of the rise of some of the emerging technology stocks back in 1999. It may pay off well, but the industry is so uncertain at this point. The rules on marijuana have yet to be put in place. This is a trader’s vehicle, not necessarily an investor’s vehicle. Not an area he would be investing in.

This would fit in with the sin stocks, and over the years sin stocks have always made big money. Cigarettes and booze stocks have always done very well. An ETF may very well be the way to play this. Marijuana still requires the US to legalize it to make it a big scale play.

This dropped a great deal, and may have hit bottom. The long-term for the industry is still very positive. This only has 15-17 names in it, and 3 of them make up 10% each. A diversified way to get exposure to an asset class, which everyone is talking about. Rather than betting the farm on one company or another, buy the ETF rather than trying to decide which company is going to be the winner or loser.

Had a hard look at this ETF. There are some fairly well-established companies, plus a whole bunch of little guys. Apparently, in some of the smaller companies, the principals have been busily selling their shares as fast as they can. The worst thing you can see in any situation is people actually stepping back and selling their shares. Stay back until the dust settles a little. See what the regulations will be.

An ETF is a natural to diversify the business risks such as crop failures. One problem is that this has 4 components that are not Canadian LPs. They have a fertilizer company which focuses on marijuana growing. They also have 3 cannabinoid research companies. You really have to follow these 4 companies, as they represent almost 40% of the ETF. He is leery of this ETF, and it is below the issue price.

The issue you should think about when investing in marijuana stocks is legalization, and what comes after that. He thinks the government is going to manage costs and margins very tightly and companies are going to be saddled with enormous regulations.

If you need sector exposure, this is a great way to do it, but he would prefer just using an individual stock. The issue is how the actual index itself is made up. Scott’s Miracle Grow, a fertilizer company, is 10% of this. So is Canopy Growth. He would prefer an active manager approach instead.

Medical Marijuana ETF. You get a diversified basket. In a broader market correction, these stocks would get hammered. If we get a down market in the next year, this would be a long term go-to area. It is completely speculative. He is not playing it today, but likes the strategy.

It will be legalized by Canada day. The major market for this however will be the States. This is a good play on that, but how much is already reflected in the stock prices?

Given how nascent the medical marijuana industry is, and how unsettled the regulatory environment is, it is very difficult to determine who is going to be the winners and losers. There is a bit of a gold rush mentality going on and it remains to be seen if that is the case.