The ETFMG Alternative Harvest ETF Q2 Market Commentary

Posted July 30, 2018

The second quarter of 2018 brought significant activity for the cannabis industry, both from a regulatory and market perspective.

The largest Q2 regulatory developments happened in the month of June. In Canada, the federal government passed the Cannabis Act (also known as Bill C-45), which will legalize the recreational use of cannabis nationwide for adults. The Cannabis Act will become effective on October 17, 2018, officially ending 95 years of recreational cannabis prohibition.

In the United States, the U.S. Food and Drug Administration approved EPIDIOLEX® for the treatment of seizures associated with Lennox-Gastaut syndrome or Dravet syndrome in patients two years of age or older. While the FDA has previously approved synthetic cannabinoid pharmaceuticals, EPIDIOLEX is the first plant-derived cannabinoid pharmaceutical to be approved in the U.S. (EPIDIOLEX contains cannabidiol, or CBD, a cannabinoid lacking the high associated with marijuana). Product availability is pending rescheduling of CBD by the U.S. Drug Enforcement Agency, which is expected to occur in Q3 2018.

In Oklahoma, voters approved State Question 788, making it legal to grow, sell and use marijuana for medicinal purposes in the State. The law provides no outlines on qualifying conditions, giving physicians broad latitude to determine why they recommend medical marijuana to patients. Under the law, adults with a medical marijuana license would be authorized to possess up to eight ounces of marijuana, six flowering plants and various weight of edibles and marijuana concentrates derived from the plant.

With respect to market developments, the month of May brought significant activity. On May 2, The Green Organic Dutchman (TSX: TGOD) successfully completed its initial public offering on the Toronto Stock Exchange. As its name would suggest, The Green Organic Dutchman is focused exclusively on organic production that avoids synthetic pesticides, synthetic fertilizers, and/or irradiated products. After completing their over-allotment, the IPO raised C$132.26 million, making it the largest cannabis-related IPO to date.

On May 24, Canopy Growth Corporation (TSX: WEED) commenced trading on the New York Stock Exchange under the ticker symbol “CGC”. Canopy’s move to list on the NYSE will make it easier for Americans to invest in the Canadian cannabis company, and follows a history of firsts for the company, including being the first publicly traded, federally regulated cannabis company in North America, and the being first cannabis company to be included in the S&P/TSX Composite index.

On May 29, MedMen Enterprises (CSE: MMEN), the U.S. marijuana retailer known for its upscale, Apple-like stores, completed its reverse takeover of a Canadian shell company. After completing a C$143 million raise, MedMen has an implied value of over C$2 billion, making it the largest company on the Canadian Securities Exchange.

Several other major players in the cannabis economy announced their intention to go public in the second quarter, so we expect the third quarter of 2018 to see a similar level of market related activity.

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