The first quarter of 2021 may have taken a few cannabis investors by surprise as the stocks that generated the highest returns on average were the Canadian-domiciled licensed producers (“LPs”) rather than the U.S.-based multi-state operators (“MSOs”), despite much of the fervour driving the stocks coming from the prospect of increased U.S. legalization.

Part of the reason for this is that the equity market, even as it relates to cannabis stocks, is still a predictive pricing mechanism, and through most of 2020, U.S. MSOs rallied on the prospect of U.S. legalization while Canadian LPs more or less languished. The U.S. presidential win by Joe Biden and his administration’s clear signal that they would support some sort of federal legalization legislation —something that is also supported by the Senate and Congressional majority Democrats — may pave the way for the well-capitalized Canadian LPs to enter the U.S. market.

Without federal legalization, most of the LPs have little to no access to U.S. market expansion, which in 2020, surpassed $17.5 billion in annual sales, according to BDSA Research. With legalization, the LPs could rapidly see revenue growth by engaging in aggressive U.S. expansion, through mergers and/or acquisitions, financed by their ability to tap into capital markets.

The ability for LPs to get U.S. exchange listings has been a key driver behind their rise in valuations, in our opinion, since a lot of the investor growth in the sector has come from U.S. retail investors who typically get their exposure through U.S.-listed stocks or ETFs. We can see, for example, that the U.S.-listed ETFs, which predominantly hold LPs in their underlying portfolios, accounted for nearly US$1.8 billion inflows during the first quarter of 2021 (Source: ETF.com as at March 31, 2021). This is a lot of money for a sector that has an average market capitalization that skews relatively low versus the broader equity sector.

This has created a large divide between the valuations on Canadian marijuana stocks vs. U.S. marijuana stocks. Canadian sales were strong in 2020, exceeding most industry estimates and topping $2.6 billion in sales for the 2020 calendar year, according to Statistics Canada. However, this pales in comparison to the aforementioned $17.5 billion in sales generated through state revenues in the U.S., where a state like California, for example, accounted for more than $4 billion in recreational sales alone, according to Marijuana Business Daily (“MJBiz Daily”). 

Source: MJ Biz Daily as at December 31, 2020.

According to CIBC Capital Markets, the Canadian LPs are trading at an average enterprise value to sales (“EV/Sales”) of 14.3 times sales versus the MSOs at 6.3 times sales. This valuation difference is staggering, given the top 10 MSOs are expected to generate more than $10 billion in revenue in 2021 versus $4 billion in revenue for the top 10 LPs.

This divergence hasn’t gone unnoticed, with the potential for downward revisions on the LPs potentially likely to occur, particularly since it appears the pace of Canadian cannabis sales may not grow at the same torrid pace as 2020 when cannabis sales were buoyed by lockdowns and pent-up demand during the COVID-19 pandemic. Even if sales growth stays relatively flat, the LPs continue to be priced for expansion in a market that appears to be potentially tapped out for now, apart from the potential for U.S. expansion.

For now, it would appear unlikely that, barring a clear path to U.S. legalization, these stocks probably have limited upside in the near term, particularly relative to the U.S. MSOs. A lot of good news is priced in that has yet to manifest itself.

New York, New York

While LP investors bank on legalization to open up the U.S. market, the growth of the state-led markets continues at a strong pace. Fifteen U.S. states have now fully legalized recreational or adult-use marijuana, the 4th most populous state in the U.S., New York, as at April 1, 2021. Marijuana Business Daily projects that sales in New York alone could reach $2.3 billion a year by the program’s fourth year and nearly $2.5 billion by year five. There is a sense that legalization in New York could spur more advocates from Wall Street to get regulatory reforms allowing for more financial support of marijuana cultivators and distributors in the U.S.

It’s not just New York that will add revenue to the growing state-led revenues. Arizona and New Jersey are now fully legal markets, and other major state markets such as Pennsylvania and Maryland could potentially legalize in 2021.

The key here is that, even without federal legalization, the U.S. marijuana market will continue to see strong growth, which should favour the MSOs.

Source: MJBiz Daily as at November 19, 2020.


One key driver of growth for the Canadian LPs remains consolidation and ongoing investment. On March 11, 2021, Organigram Holdings received a C$221 million (US$176.6 million) investment from a unit of British American Tobacco PLC to purchase 19.9% of the company. The two companies will enter into a strategic partnership initially focused on CBD product development. Keep in mind CBD is a legal product in the U.S., which again underscores that international interest in the LPs remains fully fixed on growing their footprint outside of Canada.

Looking beyond Canada was also the key driver behind the merger of Aphria and Tilray, which is slated for completion at the end of April 2021. The proposed merger would create the largest marijuana cultivator and distributor in the world, with revenue that could exceed US$1.2 billion, according to CIBC World Markets.
The main goal of this merger is global expansion, with a heavy emphasis on European and eventually U.S. expansion. Aphria will de-list from the Canadian stock market and only maintain a U.S. listing for the newly merged entity upon completion of the merger. Aphria is currently the largest holding in the Horizons Marijuana Life Sciences Index ETF (HMMJ).

HMMJ’s portfolio constituents have an average sales growth of 50.74%. Below are the price-to-book, sales, and price-to-sales metrics for the ETF and its top 10 holdings. 

Here are the same metrics for the Horizons US Marijuana Index ETF (HMUS). You can see that while the overall sales totals are a little smaller than the biggest LPs, the MSOs are generating a higher rate of sales growth at lower valuations relative to many of the LPs.

HMUS is the only ETF listed in Canada that is exclusively focused on exposure to the US market sector that can provide diversified exposure across all of these names. Similar to the broader story, there will be winners and losers in the U.S. sector, but as the sector grows in aggregate, HMUS could potentially gain meaningful growth from that overall market development.

While the growth in the U.S. market would likely be reflected more acutely in HMUS, HMMJ could also benefit from further legalization in the U.S. for a couple of reasons:

  1. HMMJ can add U.S. MSOs that partake in cannabis cultivation and production (which are currently included in its underlying index but not within HMMJ’s holdings) if/when federal legalization is allowed
  2. Large holdings in HMMJ, such as Canopy Growth, have potential exposure to the U.S. marketplace. For example, Canopy would be able to fully acquire Acreage Holdings, a large MSO, upon any announcement of U.S. federal legalization, based on existing agreements.

In either case, as we’ve seen over the last quarter, diversified exposure to the sector has been key, with HMMJ significantly outperforming HMUS on a quarterly basis, underscoring the need to potentially improve diversification by having some exposure to both ETFs. 

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

 HMUS is expected to invest in the Marijuana industry in certain U.S. states that have legalized marijuana for therapeutic or adult-use, which is currently illegal under U.S. federal law. HMUS will passively invest in companies involved in the marijuana industry in the U.S. where local state law regulates and permits such activities, as well as in companies involved in the Canadian legal Marijuana industry. Neither HMMJ nor HMUS will be directly engaged in the manufacture, importation, possession, use, sale or distribution of marijuana in either Canada or the U.S. Please read the full risk disclosure in the respective prospectus before investing.

HMMJ will not knowingly invest in any constituent issuers that have exposure to the medical or recreational marijuana market in the United States, unless or until it becomes legal. HMMJ will not be directly engaged in the manufacture, possession, use, sale or distribution of marijuana in either Canada or the U.S. Please read the full risk disclosure in the prospectus before investing.


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Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the "Horizons Exchange Traded Products"). The Horizons Exchange Traded Products are not guaranteed, their value changes frequently and past performance may not be repeated. Certain ETFs may have exposure to leveraged investment techniques that magnify gains and losses and which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the prospectus. The prospectus contains important detailed information about the ETF. Please read the relevant prospectus before investing.

The Horizons Exchange Traded Products include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in shares of a BetaPro Product decreases in value. The BetaPro Products consist of our Daily Bull and Daily Bear ETFs (“Leveraged and Inverse Leveraged ETFs”), Inverse ETFs (“Inverse ETFs”) and our BetaPro S&P 500 VIX Short-Term Futures™ ETF (the “VIX ETF”). Included in the Leveraged and Inverse Leveraged ETFs and the Inverse ETFs are the BetaPro Marijuana Companies 2x Daily Bull ETF (“HMJU”) and BetaPro Marijuana Companies Inverse ETF (“HMJI”), which track the North American MOC Marijuana Index (NTR) and North American MOC Marijuana Index (TR), respectively. The Leveraged and Inverse Leveraged ETFs and certain other BetaPro Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These BetaPro Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, among other risks, which are described in their respective prospectuses. Each Leveraged and Inverse Leveraged ETF seeks a return, before fees and expenses, that is either up to, or equal to, either 200% or –200% of the performance of a specified underlying index, commodity futures index or benchmark (the “Target”) for a single day. Each Inverse ETF seeks a return that is –100% of the performance of its Target. Due to the compounding of daily returns a Leveraged and Inverse Leveraged ETF’s or Inverse ETF’s returns over periods other than one day will likely differ in amount and, particularly in the case of the Leveraged and Inverse Leveraged ETFs, possibly direction from the performance of their respective Target(s) for the same period. For certain Leveraged and Inverse Leveraged ETFs that seek up to 200% or up to or -200% leveraged exposure, the Manager anticipates, under normal market conditions, managing the leverage ratio as close to two times (200%) as practicable however, the Manager may, at its sole discretion, change the leverage ratio based on its assessment of the current market conditions and negotiations with the respective ETF’s counterparties at that time. Hedging costs charged to BetaPro Products reduce the value of the forward price payable to that ETF. Due to the high cost of borrowing the securities of marijuana companies in particular, the hedging costs charged to HMJI are expected to be material and are expected to materially reduce the returns of HMJI to unitholders and materially impair the ability of HMJI to meet its investment objectives. Currently, the manager expects the hedging costs to be charged to HMJI and borne by unitholders will be between 10.00% and 45.00% per annum of the aggregate notional exposure of HMJI’s forward documents. The hedging costs may increase above this range. The manager publishes on its website, the updated monthly fixed hedging cost for HMJI for the upcoming month as negotiated with the counterparty to the forward documents, based on the then current market conditions. The VIX ETF, which is a 1x ETF, as described in the prospectus, is a speculative investment tool that is not a conventional investment. The VIX ETF’s Target is highly volatile. As a result, the VIX ETF is not intended as a stand-alone long-term investment. Historically, the VIX ETF’s Target has tended to revert to a historical mean. As a result, the performance of the VIX ETF’s Target is expected to be negative over the longer term and neither the VIX ETF nor its target is expected to have positive long-term performance. BetaPro Bitcoin ETF (“HBIT”), and BetaPro Inverse Bitcoin ETF (“BITI”), which are a 1X ETF, and an up to -1X ETF, respectively, as described in the prospectus, are speculative investment tools that are not conventional investments. Their Target, an index which replicates exposure to rolling Bitcoin Futures and not the spot price of Bitcoin, is highly volatile. As a result, neither ETF is intended as a stand-alone investment. There are inherent risks associated with products linked to crypto-assets, including Bitcoin Futures. While Bitcoin Futures are traded on a regulated exchange and cleared by regulated central counterparties, direct or indirect exposure to the high level of risk of Bitcoin Futures will not be suitable for all types of investors. An investment in any of the BetaPro Products is not intended as a complete investment program and is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment. Please read the full risk disclosure in the prospectus before investing. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

Horizons Total Return Index ETFs (“Horizons TRI ETFs”) are generally index-tracking ETFs that use an innovative investment structure known as a Total Return Swap to deliver index returns in a low-cost and tax-efficient manner. Unlike a physical replication ETF that typically purchases the securities found in the relevant index in the same proportions as the index, most Horizons TRI ETFs use a synthetic structure that never buys the securities of an index directly. Instead, the ETF receives the total return of the index through entering into a Total Return Swap agreement with one or more counterparties, typically large financial institutions, which will provide the ETF with the total return of the index in exchange for the interest earned on the cash held by the ETF. Any distributions which are paid by the index constituents are reflected automatically in the net asset value (NAV) of the ETF. As a result, the Horizons TRI ETF receives the total return of the index (before fees), which is reflected in the ETF’s share price, and investors are not expected to receive any taxable distributions. Certain Horizons TRI ETFs (Horizons Nasdaq-100 ® Index ETF and Horizons US Large Cap Index ETF) use physical replication instead of a total return swap. The Horizons Cash Maximizer ETF and Horizons USD Cash Maximizer ETF use cash accounts and do not track an index but rather a compounding rate of interest paid on the cash deposits that can change over time.

*The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETF or returns on investment in the ETF. Only the returns for periods of one year or greater are annualized returns.