World's Largest Pot ETF Doubles Up Tilray, Expands Portfolio

(Bloomberg) -- The world’s largest marijuana exchange-traded fund is expanding its portfolio and doubling its stake in Tilray Inc. after coming under fire for not holding one of Wall Street’s hottest pot stocks.

Horizons Marijuana Life Sciences Index ETF, or HMMJ, added eight new stocks to its portfolio and boosted its holdings in several companies including Tilray, which experienced a 200-point swing last week and touched a high of $300 on Sept. 19. The shares were at around $114 Wednesday afternoon.

The fund’s manager, Horizons ETFs Management, was was able to add Tilray in part by cutting positions in stocks that had run up and become larger portions of the portfolio. Beyond Tilray, the Nanaimo, British Columbia-based ETF increased its positions in Aurora Cannabis Inc., Canopy Growth Corp. and GW Pharmaceuticals Plc, and added stakes in Aleafia Health Inc., Choom Holdings Inc. and Eve & Co., among others.

HMMJ has $830 million in assets under management after suffering its worst week of outflows since launching in April 2017. Its fortunes turned this week, as the fund halted a six-day streak of outflows and added $4 million.

HMMJ, which tracks the North American Medical Marijuana Index, rebalances its positions on a quarterly basis. Until Friday, it didn’t hold Tilray, which now makes up more than 7 percent the portfolio, up from roughly 4 percent, making it the fund’s sixth-largest position.

“With the recent dramatic run-up in HMMJ, it stands to reason that many Canadian retail investors are choosing to participate in some profit taking right now,” said Steve Hawkins, chief executive officer of Horizons ETFs. “What appears to be driving these higher valuations are the large amount of new investors entering the space.”

Late to Party

HMMJ didn’t hold Tilray in its portfolio because the fund’s previous quarterly rebalancing took place before Tilray went public on July 18. HMMJ saw massive outflows as a result and missed out on one of the biggest booms in the stock market this year as the shares have climbed 570 percent since the initial public offering.

“It’s better late than never, but they certainly missed a huge opportunity not having Tilray earlier,” said Eric Balchunas, a Bloomberg Intelligence analyst. “This is like putting a booster rocket into your ETF, and they’re kind of late.”

The frenzy around weed stocks comes ahead of Canada’s legalization of recreational pot next month, which is projected to create a domestic market of more than $3 billion.

“When you buy one of these niche, speculative-type ETFs, you expect the index to be very aggressive and adaptive,” Balchunas said. “That’s also a disappointment for investors.”

To contact the reporters on this story: Vildana Hajric in New York at vhajric1@bloomberg.net;Carolina Wilson in New York City at cwilson166@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner, Brendan Walsh

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