Could Legalization in October Propel This Cannabis ETF?

The Horizons Marijuana Life Sciences ETF (TSX:HMMJ) was down 1.21% in early afternoon trading on August 7. Cannabis stocks have been battered since recreational legalization was made official in late June. The federal government set the date of October 17 for this to come into effect.

The Horizons Marijuana Life Sciences ETF has dropped 14% in 2018 so far. Valuations for the largest cannabis producers in Canada have soared since the Liberal government came to power in 2015, partly on the back of a promise to push for legalization.

Many of the largest producers have become the target of short sellers. Aurora Cannabis Inc. (TSX:ACB), which moved forward on two multi-billion dollar acquisitions in 2018, stands as the second most-shorted stock on the TSX. It is also the largest cannabis producer currently listed. Shares of Aurora were down 5.9% in early afternoon trading as of this writing.

How should investors respond to this pullback? The prospect of legalization is an exciting one but the roll out promises to be chaotic as provinces and municipalities are still scrambling to prepare for soaring demand. Investors should expect volatility for the remainder of 2018 and likely the first half of 2018. Valuations remain sky-high for the top producers.

Those with a long-term outlook may want to take advantage of these dips as we look ahead to the fall. This cannabis ETF provides some diversification for those who wish to pursue that strategy going forward.