While the legal cannabis industry in the U.S. and Canada is prone to the occasional wobble, we believe that its general trajectory is positive. Thirty-three states have approved the use of medical marijuana. The general disposition of the American public regarding federal legalization is positive, though cannabis production, sales, and consumption is still illegal at the federal level. We are one of a new generation of open-end mutual funds investing primarily in companies operating in legal marijuana. The Fund considers a company to be a legal cannabis company if the company derives at least 50% of its revenue from the legal cannabis industry. Cannabis companies exclude companies that are listed on exchanges where cannabis is legal but that have operations in the United States. Cannabis companies only supply products and/or perform activities that are legal under applicable national and local laws, including U.S. federal and state laws.
Marijuana Stocks on the NASDAQ
There are many marijuana companies traded on the NASDAQ. Pot stocks like Tilray (TLRY), Cronos Group (CRON), and Canopy Growth Corp (CGC) have been active on the stock market. The Fund’s top ten holdings can be obtained through this link. These Canadian cannabis companies, and others like Aurora Cannabis (ACB) are causing many investors to pay close attention, searching for stocks to buy with indications of long-term potential for growth.
Canadian companies are moving to produce in the US, and/or sell hemp products like Cannabidiol (CBD) goods through mainstream retailers. Not only could this approach boost sales, it could have beneficial effects on the general attitude towards cannabis and its derivatives. Destigmatizing cannabis in the United States will be a big step toward achieving federal legalization which, we believe, could lift all boats in the harbor, though this may not be the case. There are issues that have come with its new status in Canada, though. Now that recreational and medical cannabis are legal in Canada, companies are experiencing shortages both for domestic and international demand. Adjustment to packaging and distribution realities imposed by industry regulations have also impacted bottom lines. Similar effects can be seen in California, which legalized recreational marijuana in 2018. There, legalization has been accompanied by demands for more robust packaging and clearer labeling. Cannabis production, sales, and consumption is still illegal at the federal level.
For those who prefer a professionally managed mutual fund, the Cannabis Growth Fund exists. The companies the Fund is investing in include agriculture tech firms, biotech, cultivation and retail, products and extracts, industrial hemp, and products and services complementing the cannabis industry. Companies are selected based on five criteria: strengthening price momentum, experienced management teams, proven revenue growth, sufficient cash position, and intellectual property and key partnerships. The market is, in our view, currently highly active, with companies changing shape and changing hands.
Major Players in the Fund
The Cannabis Growth Fund exists to concentrate investments in the cannabis industry. While the Fund is based in the US, it may invest a majority of its net assets in foreign securities if its advisor (Foothill Capital Management, LLC) believe that they will potentially outperform US securities. With this in mind, it is likely a significant proportion of the Fund’s portfolio will be securities of Canadian companies. It will invest in companies with market capitalizations of at least US$100 million at the time of purchase. These companies are typical and may or may not be in the portfolio at a given time. The link below will take you to a current list of the Fund’s holdings as of June 30, 2019.
- Canopy Growth Corp: Formerly Tweed Marijuana Inc., this Ontario-based corporation is considered the world’s largest cannabis company and gained a $1 billion valuation in November 2016.
- Aurora Cannabis Inc: This cannabis producer is headquartered in Edmonton. It has operations in 24 countries. Aurora recently acquired competitors CanniMed and MedReleaf.
- GW Pharmaceuticals PLC: This biopharmaceutical company operates out of Cambridge in the UK. Its cannabis-derived products Sativex and Epidiolex are used in the treatment of multiple sclerosis and epilepsy.
- Canopy Rivers Inc: This venture capital platform is Canopy Growth Corp’s collaborator, aiding in building and strengthening its ecosystem of companies in the global cannabis sector.
- Cronos Group Inc: The Cronos Group is a collection of production, distribution, and R&D facilities which cooperate to advance cannabis research, technology, and product development. Their expanding brand portfolio contains a diverse range of products.
- CannTrust Holdings Inc: A producer which focuses on medical marijuana. It has the number one market share for cannabis oil products.
- HEXO Corp: Named The Hydropothecary Corporation until 2018. This consumer packaged goods cannabis company operates out of Gatineau, Canada, with facilities in Ontario, Quebec, and Greece.
- Tilray INC: Based in Toronto, Tilray was the first cannabis company to IPO on the NASDAQ, and the first to legally export cannabis to the US for a clinical trial. It has holdings and subsidiaries in Germany, Portugal, and Australia, and is collaborating with the world’s largest brewer AB InBev on cannabis-infused beverages.
- Cardiol Therapeutics Inc: A biotech company specializing in R&D of novel drug therapies, including pharmaceutical CBD. Its focus is on targeted therapies for inflammatory diseases.
- Organigram Holdings Inc: Atlantic Canada’s original licensed producer of high-quality medical cannabis. A leading licensed producer of cannabis and extract-based products.
Typically, the fund will invest at least 80% of its net assets in exchange-traded equity securities of cannabis companies: companies engaged in legal, cannabis-related businesses. The fund defines companies as cannabis companies if at least 50% of its revenue is derived from the legal cannabis industry.
This revenue can be earned from one or more of the following legal activities:
- Agritech: innovation and development of equipment for growing cannabis (e.g. automated fertilizer systems, greenhouse technologies, or improved lighting systems).
- Biotech: focus on the pharmaceutical applications of cannabis in treating illnesses and diseases.
- Cannabis products and extracts: selling cannabidiol (CBD) products such as edibles, topicals, drinks, etc.
- Consulting services: aiding with licensing, zoning, or simply advising on operational processes.
- Consumption devices: creating products used to consume cannabis.
- Cultivation and retail: growing and selling cannabis.
- Industrial hemp: providing products manufactured with industrial hemp, such as paper, clothing, building materials, fuel, and food.
- Ancillary products and services: companies producing items that complement the cannabis industry (e.g. cannabis breathalyzers, insurers who cover cannabis cultivators, companies designing cannabis packaging, labs that test cannabis products).
If you are interested in investing with the Cannabis Growth Fund, we can accept inquiries via phone (800) 446-1179. Purchases are available through our website, via brokerage firms such as Ameritrade and Interactive Brokers, or by mail.
OF SPECIAL NOTE
Statements, estimates and forecasts are subject to significant legal, business, economic, and competitive uncertainties, including competition, limited access to bank services, litigation, enforcement actions, and the receipt of government authorizations. This includes differences in, among other things, laws, regulations and guidelines relating to the manufacture, transportation, and storage of cannabis, and the conduct of operations, which vary among the U.S. federal government, various states, and foreign jurisdictions. There can no assurance that such estimates and/or forecasts will be realized, and these are not indicative of future investment performance. Historical data is not indicative of future performance.
Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained from 888.885.0588 or at https://www.cannabisgrowthfunds.com/. Please read the prospectus carefully before you invest.
Investing involves risk, including possible loss of principal. The cannabis industry is subject to rapidly evolving laws, rules and regulations, and increasing competition which may cause such companies to change business model, shrink or suddenly close. These may limit access to banks, and create significant burdens on company resources due to litigation, enforcement actions, receipt of necessary permits and authorizations to engage in medical cannabis research or to otherwise cultivate, possess or distribute cannabis. Possession and use of cannabis is illegal under federal and certain states’ laws, which may negatively impact the value of Fund investments. Where legalized by states, cannabis possession and use remains a violation of federal law. The companies in which the Fund invests are subject to various laws and regulations relating to the manufacture, management, transportation, storage and disposal of cannabis, including health and safety, conduct of operations, and environmental protection. Even if a company’s operations are permitted under current law, they may not be permitted in the future, and a company may not be able to continue operations in its current location. Controlled substance legislation differs significantly between countries and may limit a company’s ability to sell products.
Foreign investing involves social and political instability, market illiquidity, exchange-rate fluctuation, high volatility and limited regulation risks. Emerging markets involve different and greater risks, as they are smaller, less liquid and more volatile than more developed countries. Investments made in small, mid-capitalization and micro-capitalization companies may be more volatile and less liquid due to limited resources or product lines and more sensitive to economic factors. Fund investments will be concentrated in an industry or group of industries, and the value of Fund shares may rise and fall more than more diversified funds. Purchasing and writing put and call options entails greater than ordinary investment risks. Options ownership involves the payment of premiums, which may negatively impact Fund performance. Please see the prospectus for details of these and other risks. Distributed by IMST Distributors, LLC.