The launch of the Medical Cannabis and Wellness UCITS ETF (MCW) on the LSE on Wednesday will enter the books as the first cannabis exchange traded fund (ETF) to list on the London market.
Set up by Canadian asset manager Purpose Investments, in partnership with Deutsche Boerse, MCW consists of investments in publicly-listed companies engaged in areas such as medical cannabis, hemp and the burgeoning cannabidiol (CBD) industry, collectively known as the Medical Cannabis and Wellness Equity Index.
ETFs differ from more traditional investment trusts in that they are traded on stock exchanges and track specific indexes such as the FTSE 100, they are also transparent and incur lower fees than actively managed trusts.
UCITS, meanwhile, stands for Undertakings for the Collective Investment in Transferable Securities, a European Union regulatory framework that governs the management and sale of mutual funds. Funds certified as UCITS compliant are perceived as safe and well-regulated investments and are popular among those looking to invest across Europe.
Europe next step after success in Canada
Greg Taylor, chief investment officer at Purpose, says that following the company’s cannabis success in Canada, the group is bringing its investment knowhow to European investors.
While 2019 was something of a mixed year for the industry, particularly in Canada where the weaker operators have fallen by the wayside, the sector has come through the other side stronger.
“Now we have well-managed companies with good business plans, but this could still be the chance to get in on an early stage investment opportunity”, Taylor told Proactive.
The new ETF is targeting not just cannabis companies, but also what Taylor calls “ancillary” firms such as those who supply growers, or cannabis-focused real estate investment trusts.
He says that this method follows that used by similar exchange traded funds in North America, which initially focused on more conservative elements of the industry before adding more companies in different areas as laws around the sector liberalised.
Should cannabis laws be relaxed in the UK and Europe, Taylor says the MCW is likely to follow a similar path in chasing slightly more exotic investments.
“Huge” opportunity in medical cannabis
While most of the buzz in recent years has been around the financial opportunities of recreational cannabis, Taylor said the somewhat overlooked medical market offers a “huge opportunity”, particularly as populations age and individuals seek out more naturally-derived medicines.
“We’re just scratching the surface”, Taylor said, adding that the ETF will “absolutely” look to add new, innovative firms to its roster through its quarterly rebalancing mechanism.
Everyone waiting on the US
However, the CIO said that in terms of cannabis legalisation, there will likely be very few changes in laws across the world until the US takes decisive, federal action to reform its policy on the drug.
“The US is the world police…and right now there are 33 states with [legal cannabis] and there is bipartisan support to federally legalise cannabis. Once that happens it will globally advance the cause…we’d expect other countries such as the UK and Australia to follow on behind that”, he added.
Strong investor interest
While a change in the US may be the catalyst for other countries to relax their laws, Taylor pointed out that investor interest in the firm’s ETF and the sector as a whole is already strong.
“Cannabis is a market that’s huge and it’s not going away…There’s a lot of money in the sector that hasn’t yet been brought into the public marketplace…bringing an investment vehicle into the space shows that there are a lot of opportunities here that investors will want to add to their portfolio,” he said.
For those considering whether this is the right time to get into cannabis, Taylor said the sector went through a “reckoning” in 2019, when the value of the market dropped 40-50% after an initial period of ‘hype’, and now investors can be “more reassured” that they are buying companies that have “been through growing pains and now have a path to accelerate higher”.
Published at Tue, 21 Jan 2020 13:00:00 +0000