Cannabis Growth ETF
SUMMARY
Actively-managed, invests in companies around the world that derive most of their revenues from legal cannabis activities.
ANALYSIS
Wil be the first mutual fund to ETF conversion of a cannabis-focused strategy. Will compete with half a dozen other existing ETFs with over $2billion already in AUM. However, the original mutual fund has a track record back to April 2019 (although with only $2million in AUM).
Prognosis is not good, and only edge is its the fund's claim to exposure to multi-state operators.
Ticker: TBD
Exchange: NYSE Arca
Expense ratio: 0.67%
Original filing date: March 15, 2021
Effective date: May 31, 2021
Listing Date: TBD
CUSIP:
Active: Yes
Index / Benchmark: Not Applicable
Investment Objective:
seeks to provide
long-term capital appreciation.
Investment Strategy:
Establish universe of global securities of companies that derive at least 50% of revenues from legal cannabis activities.
Bottom up analysis.
Adviser: Foothill Capital Management, LLC
Portfolio manager: Korey Bauer
Adminstrator: Brown Brothers Harriman & Co. + Mutual Fund
Administration, LLC
Fund accountant: Brown Brothers Harriman & Co.
Custodian: Brown Brothers Harriman
& Co.
Distributor: IMST Distributors, LLC
Legal counsel: Morgan, Lewis & Bockius LLP
External accounting: TBD
Prospectus is here.
MORE ETF HEARSAY
Principal Investment Strategies
Under normal market conditions, the Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in exchange-traded equity securities of companies engaged in legal cannabis-related businesses. These companies are located around the globe and are engaged exclusively in legal activities under national and local laws, including U.S. federal and state law, as applicable (“Cannabis Companies”). Cannabis Companies are exchange traded and legally participate in the following activities:
● Agriculture technology: Companies that support the innovation and development of equipment required to cultivate cannabis, such as automated fertilizer systems, greenhouse technologies and improved lighting systems.
● Ancillary products and services: Companies that offer products that complement the cannabis industry as a whole, which can include products like a cannabis breathalyzer and laboratories that test cannabis products. This also includes companies that provide insurance to cultivators as well as those that create consumer packaging for products.
● Biotechnology: Companies that focus on the pharmaceutical applications of cannabis by developing treatments to target illnesses and diseases.
● Cannabis products and extracts: Companies that sell cannabidiol (better known as CBD) products, edibles, topicals, drinks and other products.
● Consulting services: Companies that respond to the complexity of rules and regulations regarding cannabis in different jurisdictions. They may provide services to assist with licensing, zoning or advising on operational processes.
● Consumption devices: Companies that create products that people use to consume cannabis.
● Cultivation and retail: Companies that grow and sell cannabis, and are often the types of businesses that most people think of when discussing the cannabis industry.
● Industrial hemp: Companies that provide products using industrial hemp, which is different than cannabis and may have numerous applications and uses, including creating consumer products like paper and clothing, as well as building materials, fuel and foods.
The Fund considers a company to be a Cannabis Company if the company derives at least 50% of its revenue from the legal cannabis industry. Cannabis Companies only supply products and/or perform activities that are legal under applicable national and local laws, including U.S. federal and state laws.
The equity securities in which the Fund principally invests are common stock, but the Fund also may invest in other types of equity securities, such as shares of exchange-traded funds (“ETFs”) that invest substantially all of their assets in equity securities and in derivatives or other instruments that have economic characteristics similar to such securities, and equity interests in real estate investment trusts (“REITs”). The Fund may invest a significant portion of its assets in one or more ETFs. Certain of those ETFs may invest in derivative instruments including total return swaps. The Fund may invest a majority of its net assets in foreign securities (including emerging market securities) if the Fund’s advisor, Foothill Capital Management, LLC (the “Advisor”), believes that such securities have the potential to outperform U.S. securities. It is anticipated that a large number of holdings within the Fund’s portfolio will be securities of Canadian companies. While the Fund may invest in companies of any market capitalization, including mid-, small- and micro-capitalization, the Fund will invest in companies with market capitalizations of at least $100 million at the time of purchase. The Fund intends to concentrate its investments in the cannabis industry.
The Fund’s equity investments will consist only of exchange traded equity securities of companies that are engaged exclusively in legal activities under applicable national and local laws, including U.S. federal and state laws. The Fund will not invest directly in or hold ownership in any companies that engage in cannabis-related business unless permitted by national and local laws of the relevant jurisdiction, including U.S. federal and state laws.
The Fund may also purchase and write (i.e., sell) call and put options on individual securities, indexes and ETFs, to manage the position size of individual security holdings, and to seek to enhance the Fund’s return and reduce volatility. When evaluating options, the Advisor considers the amount of the premium received or invested (which is a function of the implied volatility of the underlying security, the strike price, and the time to expiration), the valuation of the underlying security at the exercise price, the weighting of the security in the portfolio if exercised, and the expiration date. The Fund may write (sell) covered call options on securities the Fund holds in its portfolio. In addition, the Fund may lead its portfolio securities to broker-dealers and other institutions as a means of earning additional income.
The Advisor employs a strategy that first seeks to identify a universe of exchange-traded securities of companies engaged in the legal cannabis industry across the globe. Utilizing the Advisor’s proprietary screening process, the Advisor evaluates each Cannabis Company using certain criteria such as: (i) long-term growth potential, (ii) price momentum, (iii) financial viability, (iv) branding and market exposure and (v) management team experience. The Advisor also considers the liquidity of a security prior to the Fund buying a position in that security. The Advisor then selects the highest-quality Cannabis Companies that it believes have the strongest sustainable competitive advantage within the universe and offer the potential for strong earnings and growth. The Fund expects to frequently and actively trade its portfolio securities.
The Fund is classified as “non-diversified” for purposes of the Investment Company Act of 1940 (the “1940 Act”), which means a relatively high percentage of the Fund’s assets may be invested in the securities of a limited number of companies that could be in the same or related economic sectors.
The Advisor will sell all or a portion of a position of the Fund’s portfolio holdings, when in its opinion, one of more of the following occurs, among other reasons: (i) the company no longer meets the definition of Cannabis Companies as defined above; (ii) a particular security has achieved its investment expectations; (iii) the reason(s) for maintaining the position are no longer valid; (iv) the Advisor’s view of the business fundamentals or management of the underlying company changes; (v) a more attractive investment opportunity is found; (vi) general market conditions trigger a change in the Advisor’s assessment criteria; (vii) for other portfolio management reasons; or (viii) the Fund requires cash to meet redemption requests (in instances when the Fund does not meet redemption requests in-kind).
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