Evolve Funds Group has launched a new actively managed ETF – the Evolve US Marijuana ETF (USMJ CN) – on Canada’s NEO Exchange.
The fund is the first ETF to focus on the cannabis industry in the US.
The fund becomes the world’s first ETF to focus on companies poised to benefit from growth in the US marijuana industry.
According to its prospectus, the ETF may invest in companies listed globally and will select firms that are engaged in medicinal or recreational cannabis-related operations for the US market where state and local laws regulate and permit such activities.
The ETF will split its portfolio exposure approximately equally into three parts: the first will target the larger, more established cannabis firms; the second will target smaller, emerging cannabis firms; and the third will target firms with ancillary cannabis operations.
Evolve combines quantitative techniques, fundamental analysis, and risk management when selecting stocks for the portfolio.
The fund comes with an expense ratio of 1.00%, consisting of a 0.75% management fee and 0.25% of ‘other fund expenses’. It trades in Canadian dollars and incorporates a discretionary currency hedging strategy.
Evolve argues that active management is essential when approaching the US cannabis market given the ongoing regulatory environment and the significant volatility of the sector.
Raj Lala, President and CEO at Evolve, commented, “The cannabis opportunity in the US is similar to that of Canada a couple of years ago, but in many respects has the potential to be exponentially larger. In the US, ten states have legalized recreational use and 33 states have legalized medical use. Given the population in the US compared to Canada, there are some US cannabis companies generating more revenue than Canadian producers, albeit with much smaller market caps.”
“We believe there are significant near-term catalysts that will cause the US market to expand rapidly,” added Elliot Johnson, Chief Investment Officer at Evolve ETFs. “There are several laws currently making their way through Congress that would expand legalization of recreational cannabis and give those companies better access to banking and capital. The US will be positioned to become the largest cannabis market globally.”
Evolve also offers the actively managed Evolve Marijuana Fund (SEED CN), listed on Toronto Stock Exchange, which provides exposure to the global marijuana industry. Reflecting the considerable outperformance of cannabis stocks recently, the fund was the best-performing ETF listed on TSX over the past year to 29 March 2019, gaining 58.4%. It also comes with an expense ratio of 1.00% and has around $15m in AUM.