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S&P discontinues Canadian, international cannabis stock indices
Matt Lamers
August 28, 2023
Two indices tracking the performance of cannabis businesses on North America’s largest stock exchanges have been discontinued amid waning investor interest in marijuana stocks and billions in losses suffered by the companies.
The S&P/TSX Canada Cannabis Index was decommissioned with little fanfare earlier this year after being launched on Jan. 20, 2020.
A second cannabis index, the S&P/MX International Cannabis Index, was decommissioned in November 2021.
The S&P/TSX Canada Cannabis Index measured the performance of a basket of cannabis companies on the Toronto Stock Exchange and TSX Venture Exchange, including Canopy Growth Corp., Cronos Group, Organigram Holdings and Village Farms International.
No official reason was given by Standard & Poor’s.
But a methodology document on S&P equity indices stipulates that an index may be discontinued if it sees declining investor use or interest – the same issue that contributed to the shuttering this month of a cannabis-focused, exchange-traded fund linked to San Francisco-based Poseidon Investment Management.
Large Canadian cannabis companies have struggled to turn a profit as overproduction and taxes and fees continue to weigh on the sector.
Industry bellwethers Canopy and Tilray Brands, for instance, lost a combined 5.2 billion Canadian dollars ($3.8 billion) in their latest fiscal years – CA$3.3 billion for Canopy and CA$1.9 billion for Tilray.
The S&P/MX International Cannabis Index, launched on Nov. 18, 2019, had lost more than 92% of its value from its peak in February 2021.
That index largely focused on the legal cannabis industry outside North America, which has struggled to meet lofty investor enthusiasm after legalization drives fell short, were scaled back or mothballed in several countries.
The index had measured the performance of cannabis companies trading on the Toronto Stock Exchange, TSX Venture Exchange, New York Stock Exchange or Nasdaq, according to a notice by the TMX Group, which owns and operates the TSX and TSXV.
“Through our collaboration with TMX, we’re giving market participants a simple way to dissect and analyze this growing market segment,” a senior director for S&P Dow Jones Indices said when the index was launched.
In many cases, corporate executives lightweights put the cart before the horse by building out their businesses before legislators and bureaucrats in key markets had prepared adequate laws and regulations to facilitate sales.
That got investor’s attention…
Legislators in Mexico repeatedly missed Supreme Court deadlines to legalize adult-use cannabis.
In New Zealand, the “no” side narrowly prevailed in a 2021 referendum on cannabis legalization.
Germany, meanwhile, backpedaled on its plan to implement nationwide recreational legalization, opting instead for a two-track, scaled-down approach with limited commercial opportunities.
And in Colombia, the Senate fell just shy of approving a legal framework to regulate recreational marijuana sales this year.
Cannabis-related mutual funds and exchange-traded funds have also fallen on tough times.
In 2020, the Evolve Funds Group, a Canadian fund manager with more than CA$630 million under management, said it would shutter a small, poorly performing cannabis mutual fund and an even smaller ETF.
ETFs are similar to index mutual funds, but their prices fluctuate throughout the day and they can be traded like stocks.
Last week, the AdvisorShares Poseidon Dynamic Cannabis ETF, managed by the Paxhia sibling founders of marijuana hedge fund Poseidon Investment Management, said it was shutting down.
The closure of the Dynamic Cannabis ETF reflected headwinds facing the industry, including falling wholesale prices and the slow pace of federal reform in the United States.
Legacy, meanwhile has traction with fire.
Bullish
