Who knew that marijuana would ever be considered an essential service? For those familiar with social gathering restrictions in Ontario — Canada’s largest province by population — it was a bit of a head scratcher to see both online and storefront marijuana dispensaries initially included on the provincial government’s list of essential businesses allowed to stay open, while retail and restaurants were forced to close.

Dispensary sales in Ontario and the United States spiked dramatically at the onset of the social gathering restrictions. For example, California, Colorado, and Washington state saw record spikes in adult use (i.e., recreational) marijuana sales during the week of March 15, 2020.

Since the initial exemption, an updated list of essential businesses was released in Ontario in early April, which has closed storefront marijuana sales. This shifts future sales under COVID-19 to the online order and delivery model that many other businesses, including restaurants, are now operating under.


All of sudden, what was viewed as a tertiary sector began to look a lot more like a consumer staple. Historically, when we see big sell-offs in the stock market, it corresponds with an even larger sell-off in marijuana stocks. Certainly on a one-year basis, marijuana stocks remain one of the poorest performing sectors, with the Horizons Marijuana Life Sciences Index ETF (“HMMJ”) down more than 69% on a year-over-basis for the period ending March 31, 2020.

However, the recent strong sales in retail marijuana seems to have energized the sector, with HMMJ delivering an approximately 21.5% return from its low in mid-March (March 18, 2020) to the end of the month (March 31, 2020). For the 1 month period ending March 31, 2020, HMMJ returned -15.28%.

Are 2020 Revenue Expectations Still On Track?

Statistical models, such as those of CIBC and BDS Analytics, seem to suggest the Canadian cannabis market – where the majority of publicly traded marijuana equities derive their revenue – will continue to grow. The challenge is that those revenue expectations are still a long way from some of the overstretched balance sheets of many of the licensed producers (“LPs”).

According to ArcView Research and BDS Analytics, two leading marijuana market surveyors, the Canadian markets surpassed the surveyors’ internal revenue projections in 2019, with medical and recreational sales topping CAD $1.6 billion (versus a $1.1 billion forecast). Their 2020 forecast, which was established before social distancing measures, was close to $3 billion. CIBC World Markets has issued a sales forecast of approximately $2 billion for 2020. Much of this additional revenue was expected to come from increased storefront dispensaries and sales of “Cannabis 2.0” goods, such as edibles and beverages.

The good news for investors is that the current valuations of many of the LPs now likely align with these revenue expectations. Valuations have come down from the previous quarter, while average sales across the underlying constituents of HMMJ are up significantly, on the quarter.

It’s also important to note that HMMJ provides some crucial diversification as the dispersion of the underlying holdings has been stark, with some stocks experiencing one-year losses in excess of 80%, while major holdings such as Scotts Miracle-Gro have stood firm during the sell-off, with a one-year return of more than 40%.


Source: Bloomberg as at March 31, 2020.

One of the problematic by-products of the sell-off in marijuana equities is that some producers are being compelled to rely on financing through debt markets, instead of engaging in new offerings and/or capital raises, which in some cases significantly reduces the earnings potential of mid-tier producers. Other producers have been able to retain strong war chests of cash from previous equity raises.

We could see further dispersion in the space as we start to see companies struggle; despite their rising revenues, their bottom line could be hobbled by outstanding debt. Determining who will take a leadership position in revenue in 2020 is difficult to ascertain, and is one of the reasons why taking the diversified approach through ETF ownership can potentially mitigate single-issuer risk (although it may limit the upside potential of owning an individual stock), especially if we see an uptick in business failures.

U.S. Market Continues to Grow

2019 highlighted that the U.S. market might be the dominant market for recreational and medical marijuana sales globally, despite marijuana remaining illegal at the federal level. According to BDS Analytics and ArcView Research, the U.S. Cannabis market sales closed in on nearly US$12.2 billion in sales in 2019, roughly ten times the sales generated within Canada. Key state recreational markets that have recently come online, such as Illinois and Michigan, will add about $700 million in annual revenue this year, according to ArcView and BDS Analytics. Those states join other major state markets such as California, Colorado, Nevada, and Washington state as key hubs for recreational sales.

New York, which had been looking at potentially legalizing cannabis in 2020 or 2021, will likely put those plans on hold as the state deals with the COVID-19 crisis.

Generally, the multi-state operators (“MSOs”) in the U.S. are relatively well-capitalized and have strong revenue growth. Again, according to ArcView Research and BDS Analytics, the largest publicly traded MSOs are all seeing revenue growth rates rise by double-digits per quarter. The growth is exponential, but on a relative valuation basis, these stocks continue to trade at a discount relative to many LPs, simply because the legal status of their businesses remain challenged by federal prohibition and accessing large-scale equity financing through both debt and equity is extremely challenging in this environment. In some cases, these constraints are limiting the expansion potential of these companies, resulting in stagnancy.

The other major challenge for these vertically integrated producers is the social distancing measures, which could significantly reduce storefront sales and create supply chain issues. It’s quite possible that actual sales could decline precipitously — particularly in major markets like California — with more stringent social distancing restrictions.

Compounding uncertainty around these stocks beyond the COVID-19 pandemic is that the presumptive Democratic nominee for U.S. president, former U.S. Vice President Joe Biden, has historically been against federal legalization of marijuana. Whether he shifts his policy stance before any nomination remains to be seen, but if the Democrats do not champion legalization, then it’s hard to imagine there being a lot of movement on the federal level beyond what has already been established. A Biden or another Trump presidency could swiftly reduce the growth prospects of U.S. MSOs to expand nationally, and limit their ability to generate more direct investment from the U.S. financial services sector.

More Concentrated Portfolios in Q2 2020

It seems that, in the short term, we may have reached a peak in marijuana stock performance. The huge pullback in valuations over the last year has substantially reduced the number of eligible stocks for inclusion in the indices that HMMJ and the Horizons US Marijuana Index ETF (“HMUS”) seek to replicate.

This most recent rebalance at the end of March 2020 was marked exclusively with deletions from both ETF portfolios, as many of these names fell through the minimum market-cap inclusion threshold for their indices, which is CAD$75 million.

Ultimately, this might be a net positive for unitholders, as both the U.S. and Canadian markets are likely going to require companies with strong market share and financing in order to withstand these challenging times. A more concentrated portfolio will provide greater exposure to true leaders in the sector.


HMMJ is the world’s first ETF offering direct exposure to North American-listed securities that have significant business activities in the marijuana industry. This quarter, four constituents were removed from HMMJ’s portfolio:



HMMJ is an index (or passively managed) ETF, which seeks to replicate, to the extent possible, the performance of the North American Marijuana Index, net of expenses. This index is designed to provide exposure to the performance of a basket of North American publicly listed life sciences companies with significant business activities in the marijuana industry. The North American Marijuana Index selects from a current universe of companies that have operations that may include one or more of biopharmaceuticals, medical manufacturing, distribution, bioproducts and other ancillary businesses related to the marijuana industry. Securities within HMMJ’s index generally have a market capitalization of greater than CAD$75 million.

Rebalancing of the North American Marijuana Index, and consequently HMMJ, occurs each calendar quarter. At that point, all stocks eligible for inclusion in the index are generally re-weighted by their respective market capitalization. The holdings of HMMJ and its current portfolio weights are regularly updated and available at https://www.HorizonsETFs.com/HMMJ.


Launched in April 2019, HMUS is the world’s first U.S.-focused marijuana index (or passively managed) ETF. HMUS seeks to replicate, to the extent possible, the performance of the US Marijuana Companies Index, net of expenses. This index is designed to provide exposure to the performance of a basket of publicly-listed companies having significant business activities in, or significant exposure to, the marijuana or hemp industries in the United States. Constituents of this index are selected from Canadian and U.S. exchanges. While some securities may be listed on major North American exchanges, the majority of the securities currently trade on North American exchanges that include but are not limited to the Canadian Securities Exchange and the Aequitas NEO Exchange.

This rebalance resulted in the removal of six companies from the portfolio:



Rebalancing of the US Marijuana Companies Index, and consequently HMUS, occurs each calendar quarter. At that point, all stocks eligible for inclusion in the index are generally re-weighted by their respective market capitalization. The holdings of HMUS and its current portfolio weights are regularly updated and available at https://www.HorizonsETFs.com/HMUS

Performance Update as at March 31, 2020*


Source: Bloomberg, as at March 31, 2020. ** Since HMMJ’s inception on April 4, 2017.

All individual security performance is displayed in Canadian Dollars.

The indicated rates of return are the historical annual compounded total returns, including changes in unit value and reinvestment of all 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. Additionally, index returns do not take into account management, operating or trading expenses that may be incurred in replicating the index. The rates of return above are not indicative of future returns. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. The index is not directly investible.

As at February 28, 2020, Horizons Emerging Marijuana Growers Index ETF (“HMJR”) merged into Horizons US Marijuana Index ETF (“HMUS”).

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.

There are risks associated with HMUS. 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. HMUS will not 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 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 values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. 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. 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.