Pot ETFs shutting down to avoid ‘highly volatile cycle’

(GETTY)

A Canadian exchange traded fund provider is winding down its two cannabis offerings as shares of publicly-traded pot companies continue to slump. 

Toronto-based Evolve Funds Group announced on Monday that it has asked the Toronto Stock Exchange to de-list its Evolve Marijuana Fund (SEED.TO). 

“Our outlook on the cannabis market has changed significantly over the past twelve months,” chief investment officer Elliot Johnson said in an email to Yahoo Finance Canada. “Over-regulation in the Canadian market has stifled cannabis sales, and dampened the entrepreneurial spirit that originally attracted so many investors.”

Evolve said it will also shut down its Evolve U.S. Marijuana ETF (USMJ.NE), which trades on the NEO Exchange. Effective Feb. 26, no further subscriptions for units of the funds will be accepted.

The firm set a termination date of March 30. Evolve said “to the extent reasonably possible,” it will convert the fund’s assets to cash after making provisions for liabilities, and distribute the assets to unit holders of record on the termination date. 

The Evolve Marijuana Fund had $5.9 million in assets under management as of Jan. 24. Canada’s largest cannabis companies, including Canopy Growth (WEED.TO)(CGC), Aphria (APHA.TO)(APHA), and Tilray (TLRY), are among the fund’s largest holdings. 

The Evolve U.S. Marijuana ETF had $2.3 million in assets under management as of Jan. 24. It’s main holdings include Green Thumb Industries (GTII.CN), Curaleaf Holdings (CURA.CN) and Canopy Growth.

Johnson said health concerns related to vaping have added to a climate of regulatory uncertainty in the United States, countering political support for federal legalization in that country. 

“Without a clear path to federal legalization, it will be an uphill battle for producers to build their business on a state-by-state basis,” he added in the statement. “As a result, we have made the decision to fully remove our products from the market, rather than be forced to play out a highly volatile cycle.”

A one-year look at the Evolve Marijuana Fund on the Toronto Stock Exchange on Jan. 27, 2020. (Yahoo Finance Canada)

Toronto-listed shares of the Canadian fund have fallen about 60 per cent since the fund’s all-time high last spring. Shares fell 2.91 per cent to $11.69 at 10:33 a.m. ET on Monday. 

Other ETF providers have made adjustments to cope with the tough times in the cannabis sector. In late December, Horizons ETFs Management Canada dropped seven underperforming stocks from its $485 million Marijuana Life Sciences Index ETF (HMMJ.TO), including Zenabis Global (ZENA.TO), 48North (NRTH.V) and Radient Technologies (RTI.V). 

“The performance of the Marijuana sector in Q4 was quite disappointing. As a result, the market capitalization of a number of HMMJ's holdings fell below their minimum inclusion threshold, leading to their removal from the index and the ETF,” Steve Hawkins, president and CEO of Horizons ETFs, said in a Dec. 30 statement. “Within HMMJ's portfolio, this has resulted in the survival of the fittest.”

Purpose Investments recently expanded its cannabis activity with the launch of a European-focused fund in partnership with London-based HANetf. The Medical Cannabis & Wellness UCITS ETF debuted on Germany Deutsche Boerse XETRA exchange on Jan. 14, and recently started trading on the London Stock Exchange (CBDX.L).

Purpose also offers its actively managed Purpose Marijuana Opportunities Fund (MRJOF), which has increasingly shifted focus away from Canadian licenced producers towards cannabis opportunities in the United States.

Evolve also announced Monday that it will be terminating its Evolve North American Gender Diversity Index Fund.