Ruth Saldanha: Horizons recently launched a U.S.-focused marijuana fund, one of the first of its kind. What's interesting is that marijuana is still federally illegal in the U.S. So, the ETF is listed in Canada only. What does this mean? Can you invest in it? To discuss this Mark Noble, Senior Vice President of ETF Strategy at Horizons ETF, is here today with us. Mark, thank you so much for being here today.
Mark Noble: It's great to be here.
Saldanha: So, if it's illegal at the federal level in the U.S., how can investors invest in these U.S. companies?
Noble: Well, it's illegal federally in the United States. So, it is a Schedule 1 narcotic, but there's 11 states in almost 30 that have some sort of state legal medical marijuana, or in the case of large states like California, which is bigger than Canada altogether, you have legal state recreational marijuana usage. So, what's happened is, there's a number of large companies and they are large, multi-billion-dollar infrastructure footprints of companies that are cultivating and distributing marijuana in these large states, but they can't get federal stock listings in the United States and in some cases, they can't get any kind of bank investments. So, what they are doing is there's over 160 of them listed on the Canadian Stock Exchange and a number of them listed on the NEO as well that are using the Canadian marketplace to get capital markets funding. But we do have to recognize that our neighbors to the south are 10 times the size of Canada. And so, the market even with it being federally legal, is still a multi-billion-dollar market which is much larger than the Canadian marketplace even with some of those restrictions in place.
Saldanha: You mentioned that about 160 of them are listed in Canada but none on the TSX, is that right?
Noble: That's right. So, what has happened in Canada is, the Canadian Securities Administrators will allow for a stock listing in the Canadian marketplace if the company is dealing entirely in legal jurisdictions, which is why they are called multi-state operators or MSOs. It's one of the jargons used in the marijuana space. So, in Canada, you have what we call the licensed producers, they are called LPs. In the U.S., they are called MSOs. And the MSOs are dealing in legal operations. They are only dealing in states where cultivation, distribution is legal. They are just not federally legal. And from that perspective, the Canadian Securities Administrators are okay having those companies come up here and get listed. The TSX though, it took a one step further in that they will not allow for a listing that has a business with significant U.S. cultivation operations. So, that's why you don't see TSX list a multi-state operator.
Saldanha: So, why should a Canadian investor look at investing in the U.S., especially since the marijuana market is so large here?
Noble: Well, the Canadian LPs recently had a watershed moment in that Canopy was able to go and put sort of a warrant on buying Acreage Holdings which is one of the holdings in HMUS, which is the MSO ETF that we've launched. So, the MSOs are in a unique position right now. Not only are they able to take advantage of the U.S. opportunity, but also, they are now all up for sale. So, these Canadian LPs which are flushed with cash, have the ability to do an end around their listing requirements and buy some of these up. So, there's a view now that over the next few months you could see a lot of these U.S. holdings up for play by the Canadian LPs taking advantage of these rules. So, for Canadian investors, there's kind of two ways to invest. You can buy the LPs which are heavily in our HMMJ, our large ETF, or you can try to look at the specific exposure, the MSOs, which are available through HMUS.
Saldanha: Great. Thank you so much for being here today, Mark.
Noble: My pleasure.
Saldanha: For Morningstar, I'm Ruth Saldanha.
