Many Canadians expected cannabis stocks to skyrocket in value, especially after recreational marijuana was legalized in the country in 2018. The reality was that cannabis companies have underperformed the market over the past years.
A wide number of challenges have subsequently impacted their performance, some include shrinking profit margins, decreasing demand, and, most recently, the COVID-19 pandemic. The marijuana business is still a pretty new industry and is predicted to explode in the coming decade with the anticipated legalization of cannabis in the United States, Latin America, and Europe.
Canada hopes to take part in the action by becoming one of the main Cannabis producers worldwide. One way to participate in all of the action without having to risk all of your money on individual securities is by considering investing in cannabis exchange-traded funds (ETFs), such as the Horizons Life Sciences Index ETF (TSX:HMMJ).
An investor might invest in a cannabis ETF with a long-term perspective rather than analyzing an individual stock. This makes it easier for the investor to deal with the volatility that comes with individual equities.
What is HMMJ?
HMMJ is a Canadian exchange-traded fund (ETF). The ETF is an index fund that is not actively managed. The fund plans to invest in a variety of publicly listed companies that are involved in cannabis-related businesses. HMMJ tries to replicate the North American Marijuana Index’s performance as precisely as possible. This ETF holds a 74% stake in Canadian firms, a 16% stake in American firms, and a 10% stake in UK firms. The HMMJ is one of the most popular marijuana ETFs, with a current price of $10.79 (as of June 7th, 2021).
Pros of investing in cannabis ETFs:
We can see that the ETF contains a nice balance of local producers, as well as secondary pot firms, and medical marijuana businesses. This gives you exposure to a variety of marijuana-related sectors. In 2021, researchers predict that the cannabis sector will make substantial growth mainly due to the support for marijuana legalization in the United States.
Cons of investing in Cannabis ETFs:
A disadvantage of investing in the ETF is the hefty yearly fee levied by HMMJ. Most marijuana stocks have a high market capitalization compared to their trailing 12-month sales. The value is predicated on the industry’s strong growth potential and comes with major risks. The cannabis industry’s general decline has resulted from the global recession, which has severely impacted the industry included in the HMMJ ETF portfolio.
Should I invest in HMMJ ETF?
The response varies. If you’re new to investing in HMMJ ETFs, we recommend starting with a small amount because it might be considered a risky investment. However, because they are excessively volatile in the short term, they are an excellent long-term growth investment. If you want to invest in the marijuana sector, buying an ETF rather than individual stocks is still the most reliable option.