The world’s first cannabis exchange traded fund (ETF) has returned more than 50 percent so far this year, growing to $1.3 billion in assets.
“There is high demand for these products without much supply, which allows the managers to charge a premium and be almost immune to the fee pressure that is widespread across the industry,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA, a research company.
The Horizons ETF charges 75 basis points, or 75 cents for every $100 invested, which is a higher management charge than other ETFs. For example, Canada’s largest ETF, the $7 billion iShares S&P/TSX 60 Index, charges 20 basis points.
Last year, Canada became the second nation in the world, after Uruguay, to legalize recreational cannabis use after Prime Minister Justin Trudeau said prohibition wasn’t working and instead provided illegal money to gangs, while allowing for unchecked use by the country’s youth.
“The criminal prohibition that was in effect for a century in this country has failed our kids and our community,” said Bill Blair, minister of border security and organized crime reduction, at the time.
But cannabis ETFs have seen their share of ups and downs. A $10,000 investment made at Horizon’s launch in May 2017 was worth $25,750 at the end of September 2018, and then fell to $15,494 at the end of the year. The fund has since returned 52 percent.
“When we launched the fund we had no expectation of how big it would get,” said Steve Hawkins, chief executive of Horizons ETFs. “I would probably have priced it higher if I had known how big it would be.”