Should You Buy the Dip in This Cannabis ETF?

Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) has dropped 22.6% in 2018 as of close on April 9. The ETF has plunged almost 40% in a three-month span. The top two holdings in the fund are Aurora Cannabis Inc. (TSX:ACB) and Canopy Growth Corp. (TSX:WEED), which are also the two largest producer in Canada.

The Canadian cannabis market has been throttled since late January in the midst of a global stock market rout and fears of overvaluation finally spilling over. However, the ETF is still up 35% year over year. Canada is set legalization recreational cannabis use by the late summer or early fall of 2018, but the transition period could prove choppy for investors.

Provincial governments are already wrestling with the prospect of demand far exceeding supply ahead of the roll out. Officials are also determining price targets in an effort to quickly phase out the black market. There will reportedly be severe restrictions on packaging and marketing, at least early on, as the government does not wish to “promote the use” of cannabis going forward. This from Liberal MP and former Toronto police Chief Bill Blair. Blair also said that the July 1, 2018 target date was “never on the table”.

Investors who failed to sell at the peak in January can justify a hold going forward, but should expect continued volatility in 2018.