BCBusiness

JULY/AUGUST 2019 BCBUSINESS 23 SUHARU OGAWA S o…you want to invest in marijuana stocks? Well, step right up and get in line behind the thousands of other equally excitable lem- mings. Is that rude? Sorry. In truth, I understand. You've seen the crazy returns. You've suppressed pangs of jealousy while watch- ing your neighbour, whose nancial plan once consisted of recycling beer bottles and thinking magically, tool around the block in a brand-new Jag. You know the origin of this newfound wealth. And you want in. Yet how to access this world of opportunity? You could invest in speci c stocks. But when you consider that "pro table cannabis com- panies" is just another way of saying "hen's teeth," you may want to think carefully about buying individual equities. In fact, you might want to spread your risk around. But how? Perhaps by opting for a canna- bis exchange-traded fund ( ETF). Before we go any further, a disclaimer: I am uniquely positioned to give nancial advice. By this I mean that I am uniquely unsuited. At the risk of stating the obvious, taking nancial advice from a cannabis columnist is like accepting medical treatment from a cannabis columnist. (You should probably know that my management strateŒy for the common cold involves bloodletting with giant river leeches, then drilling a large hole in the patient's skull to let the black humours escape.) So, you know, just don't. When it comes to marijuana ETFs in Canada, you won't be overwhelmed with choice. As of this writing, if you, um, weed out duplicate ETFs hedged to the greenback, there are really just six available, including two newbies that launched only in mid-April. (Both of the new ETFs focus on the U.S. market. Because neither has a meaningful track record, we're going to ignore them for now.) But as with ETFs generally, all are not created equal, and signi cant di'er- ences in investment philoso- phies—passive versus active management, for one—have likely played a large part in their returns so far. When most of us think about ETFs, we assume that their intent is to track the return of its underlying index as closely as possible. Two of the four major ETFs, both from Toronto-based Horizons Exchange Traded Funds, attempt to do this. The Hori- zons Marijuana Life Sciences Index ETF, the world's rst cannabis ETF, tracks the North American Marijuana Index, while the Horizons Emerging Marijuana Growers Index ETF tracks the small-cap Emerging Marijuana Growers Index. Both are rebalanced quarterly. The other two established marijuana ETFs take an actively managed approach. Like all weed funds, the Evolve Marijuana Fund seeks to capture "long-term capital appreciation" by investing in cannabis companies and ancillary businesses—Shopify, for example, was among its top 10 holdings as of early May. The other actively managed pot ETF, the Purpose Mari- juana Opportunities Fund, is similarly positioned, with exposure to cannabis produc- ers, tech, media, real estate and other sectors. Unlike Horizons' passively managed funds, these two ETFs don't try to mirror the value of an index; rather, by actively adjusting the contents and weighting of their holdings, they aim to outper- form the relevant marijuana indexes, not just track them. How have they fared? As you might expect in a hyped- up market where valuations swing wildly, the actively managed ETFs have done better overall. Of the two funds listed on the Toronto Stock Exchange, the passively managed Horizons Marijuana Life Sciences Index ETF gained almost 20 percent for the 12 months ended May 22; the active Evolve Marijuana Fund, however, gained almost 70 per- cent during the same stretch. Compare this to the S&P/TSX Composite Index, which sput- tered and coughed its way to a roughly 2-percent return. Double-digit returns make investors salivate. But like with the dot-com run-up and, more recently, the wacky bitcoin ride, the upside in marijuana investments is much more about potential and PR than it is about balance sheets. So as always, caveat emptor. That's Latin. For "hen's teeth." Index Card If it feels like high time to buy into the cannabis market, ETFs could help you avoid the worst of reefer madness by Guy Saddy ( the informer ) P O T S HO T S

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