Evolve terminating its two cannabis ETFs after less than two years as funds drop more than 50%
When Evolve ETFs launched its Evolve Marijuana Fund in February 2018, investors were riding high on the green wave and looking forward to recreational legalization in Canada — and potentially even in the United States.
Less than two years later, citing the rocky rollout to legalization in Canada, continued uncertainty south of the border and the steep declines experienced by many cannabis stocks, the Toronto-based asset management firm announced it was bowing out of the cannabis business, shuttering both of its cannabis ETFs.
Evolve terminating its two cannabis ETFs after less than two years as funds drop more than 50% Back to video
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“This really was us looking at the space, looking at government legislation, looking at how it has rolled out in Canada, looking at the lack of movement toward legalization in the U.S. and looking at our assets and ultimately saying … ‘Do we see a light out of that tunnel in the short to medium term?’ Evolve CEO Raj Lala said. “The answer is we don’t.”
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Evolve announced on Monday that it would be delisting its Evolve Marijuana Fund ETF (SEED) and its Evolve U.S. Marijuana ETF (USMJ) by March 30, 2020 from the TSX and NEO exchanges respectively. New investments will not be accepted as of Feb. 26. As for investors who already have positions in the funds, they’ll be forced to redeem them by the end of March.
The independent investment firm launched in 2017 and soon after began to focus its product line on innovative and new industries, including cybersecurity, e-gaming and the future of automobiles. While Horizons ETFs found success with the passive Horizons Marijuana Life Sciences Index ETF (ticker, HMMJ), Evolve sought to give investors an alternative by launching the actively-managed SEED ETF in February 2018.
Evolve doubled down on the cannabis boom in April 2019 with its USMJ ETF, another actively-managed product that would focus entirely on the U.S. industry. At the time, SEED was rolling, up more than 30 per cent and had just reached an all-time high of $30.66.
But the firm’s timing could not have been worse as cannabis stocks would soon enter a devastating bear market that has seen some of Canada’s top companies in the sector lose more than 50 per cent of their value. The industry has yet to recover and there are doubts as to whether the companies within it may ever return to the trading levels they hit in March 2019.
After opening its first day on the market at $20.25, USMJ would hit its all-time high only eight days later at $21.75. On Monday, it closed at $9.88.
SEED has followed a similar path and closed at $11.58 on Monday, more than 62 per cent off its all-time high.
From the beginning, Evolve had issues in making both appealing to investors. “The numbers never lie,” said Lala, speaking of the $5.9 million and the $2.25 million in AUM that SEED and USMJ currently hold.
At its peak, SEED had around $14 million in AUM. Lala said Evolve struggled to draw interest because it wasn’t the first to market.
“I think maybe there was significant first movers’ advantage to a fund like HMMJ,” Lala said. “Sometimes it’s not easy to be the second or third or fourth to market with a product.”
Most of the rationale for launching USMJ, Lala said, was due to the legislative changes that Evolve foresaw in the sector in the mid-term. The vaping crisis that has killed 60 people and hospitalized a total of 2,668 as of Jan. 14. has muddied that thesis and he now expects no U.S. presidential candidate to raise legalization during the federal election.
The miss on cannabis isn’t convincing Lala to reassess Evolve’s strategy. They’ll continue to target sectors that are new and innovative. And although there would need to be significant change to merit it, Evolve can even find its way back into cannabis in the future, he said.
On Monday, Evolve also announced that it will be terminating its Evolve North American Gender Diversity Index Fund.
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Evolve to Shut Down Cannabis ETF
Evolve ETFs announced this morning that it will close its Evolve Marijuana Fund (TSX: SEED) next month. The firm, which is also closing Evolve U.S. Marijuana ETF (NEO: USMJ) and the Evolve North American Gender Diversity Index Fund, has requested that the funds be delisted in March.
The Evolve Marijuana Fund listed in February 2018 and has just C$6 million in assets. It had tried to differentiate itself by being actively managed and by having the ability to invest up to 10% of its portfolio in private companies. In 2019, the ETF returned -34.06%, which trailed the North American Marijuana Index, which returned -31.51%. Over the past month, it averaged just 2982 shares of trading per day. The fund had 31 holdings at year-end, and its top 10 holdings included nine Canadian LPs and a U.S. CBD company.
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Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email