There’s an old saying on Wall Street that trying to call a market bottom is like trying to catch a falling knife. You’re bound to get cut.
In the last six months, the cannabis industry has been informed of three different cannabis Exchange Traded Funds (ETFs) that were closing. Now it seems just as these ETFs closed, money is flowing back into the remaining ETFs and the two-year bear market may be coming to an end. Timing is everything.
There have been several potential catalysts for the cannabis industry over the past couple of years and each one went up in smoke. The valuations for stocks popped on the news and then just as quickly flamed out.
After launching in 2021, The Poseidon Dynamic Cannabis ETF (NYSE: PSDN), led by founders Emily and Morgan Paxhia and managed by AdvisorShares announced it was closing In August 2023. The ETF had lost approximately 74% in value since it was founded, versus a 1.7% decline in the S&P 500. The ETF unloaded all of its holdings.
While Poseidon was a cannabis only house, other ETF companies tossed their cannabis funds out with other products in a big housecleaning effort. For example, in January 2024, New York-based exchange-traded funds provider Global X ETFs decided to close of several of its funds. The company said that the Jan. 19 decision was part of the company’s regular review process and was expected to impact less than 1% of its total assets under management. The Global X Cannabis ETF (NASDAQ: POTX) invested in companies across the cannabis industry and was established in September of 2019. The ETF had 16 cannabis holdings and $27.99 million in assets under management. The ETF’s performance was lackluster. Its net asset value had dropped by 44.36% for one year and 51.98% for three years.
Horizons ETFs Management (Canada) Inc. plans to close the Horizons US Marijuana Index ETF effective March 28. The company said it is part of a broader move by the company to restructure its fund offerings. The ETFs will be delisted from the Toronto Stock Exchange and Cboe Canada by March 22, a significant step towards their official closure. The company looks like it is keeping its Horizons Life Sciences ETF (HMMU), which has $77 million in assets under management as of February 2024.
Cannabis Analyst Jesse Redmond of Water Tower Research wrote on Feb. 5 that cannabis stocks earned a fifth-straight week of positive returns, with the US cannabis Advisors Shares Pure U.S. Cannabis ETF (MSOS) gaining 11.95% and the global Advisors Shares Pure Cannabis ETF (YOLO) gaining 5.56%. YTD, MSOS is +45.64% and YOLO is +25.82%. The analyst said, “The gap between US and foreign cannabis stock performance continues to widen.”
Not only are the prices recovering, but money is flowing in – perhaps it was the money returned to investors from the closed ETF? Redmond stated that the MSOS ETF had $44.8 million of inflows last week. The $17.8 million on February 1 was the largest one-day inflow since October 2, 2023. The assets under management of the MSOS ETF are $1.01 billion, while YOLO has $48 million in assets under management.
With all the speculation around cannabis getting rescheduled, it’s no wonder that the largest market for adult-use cannabis would see the investor interest spark renewed. So, just like the rest of the cannabis industry, the smaller ETFs are getting weeded out.