Horizons Consolidates Cannabis ETFs, Bearish On Outlook

Canadian-based Horizons ETFs Management Inc. is beefing up its cannabis index funds for investors, with consolidation moves set to kick in a week from now.

The news comes as marijuana companies continue to post declining profits amid a tightening economic landscape that finds most asset classes and equity indices in the negative.

Horizons’ posted a consolidation ratio of 1:4 for their U.S. marijuana index ETF (HMUS) and a 1:2 ratio for its BetaPro Marijuana Companies 2x Daily Bull ETF (HMJU) – which tracks the North American MOC Marijuana Index (NTR). Their Marijuana Life Sciences Index ETF (HMMJ) saw a 1:2 ratio. The consolidations will kick in after the Toronto Stock Exchange and the NEO Stock Exchange close on Friday.

Those active in the industry have signaled cooling demand for marijuana stocks. Investors and analysts took bearish positions on the “second-worst performing asset class by performance” in a recent third-quarter sentiment survey conducted by Horizons ETFs.

The North American Marijuana Index fell 42.54% in the second quarter this year, and outlooks among analysts surveyed remain relatively flat, with advisors fortifying their bearish stance. The survey added two percentage points of negative sentiment for 44% bearishness. Investors’ negative opinion remained unchanged at 37% bearishness.

At the same time, their North American Psychedelics Index ETF (PSYK) saw a 1:4 consolidation ratio. 45% of analysts surveyed are bearish about the asset class.

Morgan Paxhia, co-founder and managing partner of Poseidon, noted in an interview with The Green Market Report that many ETFs launched products at a time when markets were “a lot more robust.” He attributed the drop to shaved sources of capital brought by stalled banking legislation as well as the cyclical nature of the economy.

“They probably saw overlap within their strategy where it wasn’t really making much sense,” he said. “I think it’s a good thing. Ultimately, this is kind of like a natural process, and we’re seeing this on the private side as well.”

As interest wanes with stock prices declining, firms will see fewer opportunities in a bear market.

“The speed at which they can move is is probably going to catch some people off guard,” he said, adding that ETFs are “an incredible vehicle for capturing those movements, because you’re just buying one ETF and getting a whole basket.”

“They can do very well when this market does finally turn,” he said.

Adam Jackson

Adam Jackson covers the cannabis industry for The Green Market Report. He previously covered the Missouri statehouse for The Columbia Missourian and freelanced for The Missouri Independent. He most recently covered retail, restaurants, and other consumer companies for Bloomberg Business News. You can find him on Twitter @adam_sjackson and email him at adam.jackson@crain.com.

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