Medical Cannabis ETF report

Medical Cannabis Monthly Report | June

Key Takeaways

  • Pharmaceutical cannabis is closely tied to the healthcare sector and in recent months valuations for many of these companies have jumped as the market looks for a pharmaceutical solution to the global pandemic
  • Preliminary research has shown that medical cannabis could help prevent contracting Covid-19
  • 57% of pet speciality stores in the US are now selling CBD products

Performance Review

May marked another strong month of recovery for the cannabis sector as investors measured the long-term growth potential of cannabis against a significant decline in valuations. In the face of recessive markets, cannabis is one of the only sectors where earnings are expected to grow over the coming years vs catching up to the highs set in 2019. This secular growth is starting to resonate with an increasing investor base, which has meant that since launch in early January, the Medical Cannabis & Wellness UCITS ETF (CBDX) has now provided similar returns to the NASDAQ.

We have further refined our investment verticals to differentiate between the medical and pharmaceutical cannabis. Pharmaceutical cannabis is closely tied to the healthcare sector and in recent months valuations for many of these companies have jumped as the market looks for a pharmaceutical solution to the global pandemic. Medical cannabis operators on the other hand just went through providing fiscal updates with sequential increases in industry earnings across most jurisdictions. The notable exception here is Germany, where demand has stayed steady but distribution hurdles remain and obstacle to growth. Those operating in the CBD wellness space have also seen a significant increase in sales for nutraceutical health as consumers looks to their immune systems. And lastly, the ancillary names in the portfolio continued to post increase in revenues in-line with medical cannabis however saw an outsize increase in multiple appreciation as those barred from investing in the sector directly pursue exposure.

Medical Cannabis and Wellness Equity Index (NTR) Performance

1M 3M 6M YTD 12M Since Inception
The Medical Cannabis and Wellness UCITS ETF (Acc) 15.19% 11.21% - - - 0.73%
The Medical Cannabis and Wellness Equity Index (NTR) 15.25% 10.95% -7.04% 0.63% -31.43% 0.29%

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/05/20

Industry News | Macro Developments

A preliminary research study at the University of Lethbridge in Canada1 has shown that medical cannabis could help prevent contracting Covid-19. Certain cannabis extracts could potentially work together with proteins to block key gateway paths for Covid-19 to enter the human body. This creates potential for the treatment to become useful in helping prevent the spread of the disease. Although early to make any conclusions, this highlights the myriad of pharmaceutical possibility which could come from further study of cannabinoids which have been kept away from laboratories for decades.

In the US, a key vertical experiencing exponential growth in distribution and sales has been CBD for pets. A December 2019 Nielsen study2 shows that 57% of pet specialty stores in the US are now selling CBD products, even as the U.S. Food and Drug Administration (FDA) has yet to provide guidelines on CBD for animal consumption. Pet parents are looking to CBD to help with pain, anxiety, stress and arthritis for their four-legged companions. A large reason for this has been awareness in veterinarians of CBD products has been greater vs their physician counterparts. Many animals share the same endo-cannabinoid systems as humans, responsible for regulating and balancing many processes in the body, including immune response.

Outlook

Other than cementing the status of medical cannabis as an ‘essential service’, the global pandemic has also brought the theme of secular growth back to investor attention. In an environment where earnings across most sectors are expected to suffer foreseeably, we believe medical cannabis and CBD wellness sectors are expected to continue an earnings expansion. Coupled with the multiple expansion we observe in the ancillary and pharmaceutical industries, we find even more confidence in our long-term views for industry growth and eventual broad embrace.

Constituent News

Innovative Industrial Properties (NASDAQ: IIPR) completed an upsized public offering of US$100M in late May to invest in specialised real estate assets that support the regulated cannabis cultivation and processing industry. As many investors experience difficulty in allocating directly to the medical cannabis business in the US (due to compliance reasons), operators have found an innovative way to finance large infrastructure projects via sale-and-leaseback agreements with the likes of IIPR and their peers. Although major banking and financing reform for the industry remains a hot topic with legislature, the industry continues to find unique avenues of funding to get a head-start on this investment opportunity.

Khiron Life Sciences Corp (KHRN) recorded receipt of its first medical cannabis prescriptions for patients participating in Project Twenty21 in the United Kingdom (UK). Khiron branded medical cannabis is now available for prescription from doctors and clinics participating in the program. The program aims to enrol 20,000 patients by the end of 2021, creating the largest body of evidence for the effectiveness and tolerability of medical cannabis, with an aim to demonstrate to policymakers that medical cannabis should be widely available in the UK where an estimated 1.4m people are using ‘street cannabis’ to treat medically diagnosed chronic health conditions.

Top 10 Constituents

Weight
Corbus Pharmaceuticals Holding 14.19%
Scotts Miracle-Gro Co/The 12.16%
GW Pharmaceuticals PLC 10.81%
Cara Therapeutics Inc 9.52%
Amyris Inc 9.27%
Innovative Industrial Properti 8.08%
Charlottes Web Holdings Inc 8.06%
GrowGeneration Corp 6.25%
Zynerba Pharmaceuticals Inc 4.23%
22nd Century Group Inc 3.82%

CBDX Fund News

Recent Rebalance: 29th May 2020 - One new security added to CBDX:

  • New Age Beverages The next re-balance will take place on 31st August 2020

CBDX listed on SIX Swiss Exchange on 2nd June 2020

Learn more about CBDX:

[1] University of Lethbridge, Igor Kovalchuk, In Search of Preventative Strategies: Novel AntiInflammatory High-CBD Cannabis Sativa Extracts Modulate ACE2 Expression in COVID-19 Gateway Tissues Link is here

[2] Neilson Global Connect, 2020 Hemp Industry Daily https://hempindustrydaily.com/sizzling-cbd-pet-market-sees-soaring-sales-adoption-by-mainstream-brick-and-mortar-retailers/

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