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Marijuana ETF - HMMJ

79K views 290 replies 57 participants last post by  doctrine 
#1 ·
This Horizons ETF (HMMJ) launched yesterday and is the first marijuana ETF in the world! It holds mostly Canadian marijuana related stocks, capped at 10% each. Thoughts?

The fact it's a new sector is intriguing, I'll admit, though all the stocks in it are very high risk. I'm tempted to buy 100 shares as a lottery ticket, purely as a ponzi/bubble play in case tons of money pours into the sector and sparks a bubble.
 
#137 ·
Here is my old tracking of the # of units being held by HMMJ:

Jun 8 - 11.8 million
Nov 7 - 17.3 million
Nov 28 - 20.8 million
Dec 29 - 26.3 million
Jan 5 - 32.2 million
Jan 24 - 36.1 million
Apr 21 - 41.4 million

In the last 3 months, there has been 5 million new units created, so growth is there, but it is certainly dropped off. The return has been -29% in that period of time.

I think there will be severe oversupply within 12 months of legalization. I think now most investors are going to want to see how sales hold up in such a competitive environment with very little barrier to entry. Scale will matter, I think, if it becomes a commodity and branding is not important. There are some awfully big industrial farming sized greenhouses being built.
 
#138 ·
Thanks doctrine. That's interesting, so they have still been able to issue new units (new money flowing in) even during the last few months of pot stock weakness.

I also can't understand how anyone would want to buy in or invest at this point. Seems like it would be best to wait and see how it all shakes out.
 
#139 ·
Strength seems to have resumed. $860 million in assets now and I still think it might exceed $1 billion by end of year. To illustrate again just how crazy this asset accumulation (investor appetite) has been, HMMJ is now larger than:

XGD, the 17 years old gold miners ETF ($745 million)
XAW, the iShares core and couch potato ETF for global allocation ($704 million)
 
#143 ·
From what I have read, the gov't seems set on about $10 per gram at the retail level. From that, there will be production and distribution costs, retail margin, regulatory costs, corporate income taxes, weed tax and probably HST (GST+PST). Everyone wants their piece of the pie. Illegal weed has only production and distribution costs. IIRC, neither Colorado nor Washington state have made a significant dent in the illegal market which goes for about $7 per gram. Our legal market will likely have to export to stay solvent or everyone will have to take smaller pieces of the pie.
 
#144 ·
I don't think the export market will save our producers. Not when producers in South America already have the ability to produce and ship to Canada for about 1/2 or less than what it costs to produce in Canada.
If Canada expects to export they have to be prepared to be open to imports. That would kill our industry pretty quick.
 
#146 · (Edited)
HMMJ assets are now $958 million. I still think it will exceed a billion $ by the end of the year.

There is a fascinating aspect of HMMJ that I just recently learned of. Because marijuana stocks are so actively traded and shorted, there is significant borrowing demand for the shares. HMMJ is able to earn securities lending income by lending out the shares to hedge funds and brokers, and collects very significant income doing this, allowing them to outperform their benchmark. They write in the 2017 annual report:

The significant outperformance of the ETF over the Underlying Index is, in large part, due to the revenue earned by the ETF through its securities lending activities. The securities lending revenues earned by the ETF enabled the ETF to pay net income distributions of $5,531,006, or $0.31 per unit. This represents an annualized yield of approximately 4.18%, after expenses, on the ETF’s issue NAV of $10.00, despite holding a portfolio of securities which, for the most-part, do not pay dividends themselves.
HMMJ yields 5% today.

This comes along with some risk of loss, as is always the case with securities lending. HMMJ is lending out 1/4 of their securities and could lose money if one of the borrowers defaults.

In other words, HMMJ's enormous current-day 5% yield comes from securities lending, not stock dividends! It's normal for ETFs and mutual funds to lend out securities, but normally they collect such a small securities lending income that it's hardly noteworthy. In this case, because of the insanity around marijuana stocks, the securities lending income from lending 1/4 of their assets is huge.

Horizons also describes this HMMJ income distribution in this article.

A very interesting situation. Not sure you can count on securities lending to keep providing such an income stream long term, but it seems beneficial for a marijuana investor to use HMMJ. If you hold a few of these stocks individually, you aren't compensated for securities lending, even though your broker may be lending your shares behind the scenes. If you hold HMMJ, then Horizons passes through the income from securities lending to you.
 
#149 ·
I just read an article on CNBC regarding those who purchased Cryptocurrencies in the end of last year and beginning of this year because of FOMO and their hard earned money is down 70% to 80% so far. Some even took loan to purchase it. Greedy bastards....

We will read the same story once the bubble bursts in the Marijuana industry.
 
#150 ·
We will read the same story once the bubble bursts in the Marijuana industry.
I am of a similar view but don't think the decline will be as dramatic as for the crypto-bubble. The aggregate market cap of all these weed companies wildly exceeds any reasonable estimates of net cash flow multiples from company operations for some years (never mind earnings that we won't see for a long time due to the tax pools they have been accumulating). All the capital that is being expended to build production and distribution facilities has to be paid back eventually.
 
#151 ·
I think the MJ sector is a bubble but I don't think it's as risky as crypto currencies. The crypto currencies are an absolute disaster, free-for-all, unregulated, with scams all over the place. The MJ companies on the other hand are public corporations with auditors, boards, professional management, and operate under regulatory guidelines. They meet TSX listing requirements.

I think of the MJ sector has being like pharma. Very volatile, could incur big losses, but still legitimate companies that could possibly have bright futures. Just like pharma, I wouldn't ever invest too much into them.
 
#152 ·
Market cap

Weed - 15 billion
ACB - 8.6 billion
APH - 5 billion



Air Canada 7.5
Canadian Tire 9
Dollarama 16.6
Tim Hortons 19
NA 21.8


There probably will be a burst, but I don't think it will be soon.
Everything weed related will be sold out for a couple months.
But after a couple financials come up, they will definitely start slowing down.
But there will still be hype out of country.

Better yet, is there a pizza or potato chip ETF for the munchies?
 
#154 ·
Clearly all weed stocks are going to infinity. There is no stopping this train!!!

To be honest I"m perplexed by this rebound. Late 2017 and early 2018 the young people at work were raving about weed stocks.....then from about March to recently nary a peep and I thought for sure the bubble had burst but yet here the frenzy seems to have re-appeared. Abit sad that value type stocks with real profits are being completely ignored for these overvalued hype stocks.

Ultimately the producers will trade like commodity stocks...they are growing a plant pure and simple and orders will go to the lowest cost producer.
 
#155 ·
Cannabis companies have some value. Real markets are opening up. WEED just took a $5 billion cash injection from one of the largest alcohol producers in the world.

The effects of legalizing cannabis are also real. Alcohol sales have fallen up to 30% as people have substituted cannabis in real quantities.

So, there is something to it - it's not a zero market by any stretch - it's a legitimate multi-billion dollar industry.
 
#156 ·
It is a legitimate industry, but it is also a replay of the dotcom boom (and eventual bust). The aggregate market caps of the players are just so far out of anything remotely possible to achieve on an aggregated cash flow basis over the next 10 years, never mind an earnings basis. Given what happened to dotcom investors in 2000, and as a retiree counting on his portfolio to see himself through the next 20-25 years or so of my life, I won't be touching anything in this space.
 
#158 ·
The sector is at a minimum a factor of 10 overvalued. I am likely one of the highest risk taking investors on this forum and I won't go anywhere near this either. This is agriculture and commodity stuff. The only way to make it worse is to get an airline involved somehow.

Having said the above, greater fools have been plentiful and might continue to be.
 
#157 ·
agree that they may well come down to earth but the risk is worth it ... canada has a world-wide lead on the mainstreaming of this industry, we have the land, power and water to grow very inexpensive high-quality pot

no other first-world country is close (the us states don't count since they can't access money or move their product outside state) and federal legalization is a few years away at best ... mexico might get in and somewhere in europe but i can see them looking to canada for advice and partnerships

we are developing first-class companies who will no doubt be looking for overseas opportunities, we have a terrific lead in this business

the valuations are based on all this and there is plenty of big corporate money on the sidelines looking at the business as we have seen in the news in the last few days
 
#159 ·
the valuations are based on all this and there is plenty of big corporate money on the sidelines looking at the business as we have seen in the news in the last few days
I don't disagree but I also know big corporate money has blown its brains out before, e.g. buying into the fluff of the dotcom boom of the late '90s. Don't assume they really are doing anything other than placing a bet that could go very bad. Think of WorldCom, AOL/Time Warner and a whole host of other companies that essentially destroyed themselves almost 20 years ago. Seems like every generation must re-learn the mistakes.

That said, I agree Canada has an inside track on developing a global business before anyone else really gets on track. I hope it succeeds. If nothing else, I hope Canada continues to draw in a whole bunch of international money into this space. Given the drying up of foreign investment elsewhere in Canada for a host of reasons, we need to at least suck International investors dry to the benefit of Canadian shareholders.
 
#162 ·
I read that earlier, really it's missing the biggest bear argument: simple oversupply. There is something like 3000 metric tons of marijuana capacity planned domestically, and that was a few months ago; it might be even more now. The estimated total Canadian consumption varies, but generally I have seen ranges around 600-800 tons, including the total black market. There is simply going to be tons of weed growing out of everyone's ears and up to their eyeballs at the same time. Combine that with sky high valuations, and something will have to give. It will probably take until 2020 for that full capacity to be planted, so there will be a delayed reaction, but this is rather quite inevitable.
 
#163 · (Edited)
3000 metric tons per year is 6.6 million pounds. That (according to Google) will make an incredible 5.94 billion joints (0.5gm/jt, 28.35gm/oz, 16oz/lb, 2200lb/metric ton). Note: I'm assuming the entire weight is usable/consumable.
There are 28.8 million Canadians age 20 or older.
That is 206 joints per year for each and every of 28.8 million adult Canadians.
Currently, 4.2 million are recent users, while 2.4 million are daily or weekly users.
Simplistically, demand would need to increase by over 10 times before all that supply could go up in smoke.
And if that ever happened, I think the country would grind to a halt except for munchie runs to 7-Eleven. Or do they all just go to sleep?
 
#165 ·
Some new numbers being reported. Doctrine, not sure of the source for the 3000 metric tons number?
This article is reporting demand estimates of 400k-500k kg on the low side from Canaccord, and 926k kg from Health Canada on the high :) side. That "only" translates to demand of 800 million up to 1.85 billion joints. Also, CD Howe is predicting that only only 1/3 of first year's demand (200k kg of 600k kg) can be met in the first year.
 
#164 ·
Unfortunately it's impossible to time the end of bubbles and manias. Those arguments might all make sense, but it doesn't mean that pot stocks are going to fall tomorrow. With Americans getting on board (say TLRY, which is US traded), this could even get crazier.

Additionally, we're in a broad stock bull market and there isn't much fear out there. This helps buoy themes like crypto currencies, pot, and tech stocks. A euphoric market seeks outlets for its unrestrained greed & risk taking. IMO marijuana has become one of those areas.

The pot rally could possibly keep going as long as the general stock market stays bullish. People don't really fear anything these days.

Even as I write this, I'm seeing pot stock ads on CMF.
 
#166 ·
Yes, there will be a shortage at first.

But look at Aurora's projections from their latest Q report:

Facilities and Production update

During and subsequent to the quarter, the Company made significant progress towards increasing its production capacity. As at September 2018, the annualized run rate of Aurora's in-service production rooms is 45,000 kgs. Management anticipates that around calendar year end 2018, the Company will have a production run rate in excess of 150,000 kg per annum, with subsequent scale up to over 500,000 kg per annum


Canopy is producing even more. And there are more big players - Aphria, Hydrocophery, Tilray, and many more. Maybe all planned production won't happen, but right now it is wel in excess of 600-800 kg total market estimates. Aurora alone is planning on nearly producing that much.
 
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