The Exchange Traded Fund (ETF) tracking the Canadian cannabis sector is the Horizons Marijuana Life Sciences ETF (TSX:HMMJ), a portfolio of companies either directly or indirectly involved in the cannabis trade. In this article, I’m going to discuss whether now is the right time to load up on this ETF.
With a number of cannabis companies announcing layoffs, including Tilray (NYSE:TLRY) with a 10% reduction of its workforce, Hexo Corp. (TSX:HEXO) and Aurora Cannabis with 500 layoffs, the sector has seen some pretty hefty losses of late.
My perspective on this is that there is likely more turmoil to come for cannabis producers in the way of layoffs and restructurings, as companies shift their focus away from rapid expansion to profitability.
The HMMJ ETF tracks the Canadian cannabis sector broadly, so investors looking to invest in this sector with a focus on companies that have shown real profits will not be able to do so with such an ETF.
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I would recommend extreme caution with respect to picking companies in the cannabis industry without profits at this point in time, as it appears the market is placing a serious emphasis on profitability and choosing any cannabis producer that has ignored this sentiment could turn out to be costly.
There is certainly an attractive growth story that the HMMJ ETF provides, but putting too much portfolio weight on the cannabis sector remains extremely risky for any investor today.
If you’re going to trade this ETF, I would advise keeping positions small and utilizing stop losses to avoid seeing dramatic downward fluctuations in your portfolio. We are still in the early stages of the cannabis game, so I’ll be on the sidelines until I see how this industry lines up.
Invest wisely, my friends.