January 31, 2025
Commentary
The Ninepoint Cannabis & Alternative Health Fund is focused on the key drivers affecting cannabis, health and wellness, and the pharma and consumer health sectors. We invest in companies that are embracing new modalities, innovative technology and effective distribution. We believe that people globally are becoming more aware of alternative treatments and seeking out the best providers of select services. Our goal is to invest in those companies best positioned to take advantage of these macro changes.
Summary
According to the advance estimate, Q4 GDP in the U.S. was reported as +2.3% annualized (vs. +3.1% Q3 GDP). GDP in the fourth quarter primarily reflected increases in consumer spending and government spending that were partly offset by a decrease in investment and imports. Compared to the third quarter, the deceleration in real GDP in the fourth quarter primarily reflected downturns in investment and exports. The GDP highlights optimism in the U.S. economy, particularly from resilient consumer spending.
Despite our concerns with inflation expectations, we anticipate a reasonably favorable environment for risk assets in the first quarter of 2025. Consumer confidence surged in November to the highest reading in over a year, underpinned by strong labour market conditions and optimism about future job opportunities. Small businesses, the backbone of the U.S. economy, are riding a wave of optimism tied to expectations of tax relief, regulatory rollbacks, and pro-growth policies under President Trump. US Banks released the latest quarterly results and spoke to an encouraging US economic and regulatory environment. After more than two years of broad deceleration, the cyclical economy is flashing stabilization. The U.S. labor market remains resilient, as recent initial jobless claims data reflect no significant signs of softening. Tight labor conditions continue to support consumer spending, acting as a buffer against broader economic uncertainty despite persistent inflation. We are currently positioned for reignited growth with inflation re-accelerating in the near term before levelling off by being overweight healthcare technology and limiting exposure to pharmaceutical companies.
Healthcare companies are experiencing rising costs and looking to increase patient count to outgrow cost concerns. (Cos like UHN, UHS, HCA) We wait on the sidelines for now not wanting to add to managed care companies, pending further changes in the regulatory landscape.
Consumer Staples that have a focus on health and wellness are a place that can perform well with the headwinds of inflation, threats of tariffs and a strong USD. Top ten holdings COST and WMT stand out with value pricing along the trade down from consumers leading to outperformance. Sales growth from both companies has momentum to start 2025. Their value proposition continues to attract more consumer spending, and both will continue to make up a healthy weighting in the portfolio.
US cannabis – we continue to hold leading names in the sector while the industry waits for catalysts to materialize. Reflecting our belief that select operators can outperform, we highlight that TSND preannounced and beat expectations. Many US operators focus on maturing debt over the next 24 months to clean up balance sheets. Cash flow is the key determinant here with our holdings illustrating strength, such as: GTII, VRNO, TRUL and CL
Canadian Cannabis – ACB had strong Q3-25 results due to increased international medical cannabis sales. These stronger quarters, where revenues jump by 15%+ can be isolated and after an initial positive response in share price, we may see renewed selling pressure as results QoQ have not been consistent over time. In addition, WEED remains the cash flow negative and although sales increased in Q3, the company missed analyst estimates and share issuance continues to be a drag on the share price.
Regulatory
RFK HHS Hearings
During the first week of February, the long-waited Senate hearings to nominate Robert F Kennedy Jr. as head of Health & Human Services (HHS) took place. During the hearings, RFK faced several challenges as his views on abortion rights were questioned by Republicans who support current abortion laws; his views on vaccines were targeted as being alarmist and conspiratorial with suggestions he didn’t have science to back his claims. One area that no one challenged was his attack on food additives, obesity rates and the food industry. We see his successful nomination as a time to position the portfolio away from pharmaceuticals as we anticipate a slowdown in approval for new medicines and vaccines, adding cost and oversight to clinical trial processes. We believe that investing in proactive health strategies will be an area with stability and growth.
US Cannabis
While US cannabis investors await catalysts such as re-scheduling or adult use transformation in Pennsylvania that will once again ignite investor interest, we continue to focus on those operators with leading positions in select markets, growing cash flows and a focus on efficient operations. We continue to believe that Terrascend (TSND) possesses many of the listed attributes. TSND released Q4-24 preliminary results well ahead of previously announced March timelines. The company delivered sequential revenue growth in the quarter of $74.4 million and a gross margin of 50.2%, an increase of 140 basis points quarter-over quarter. The company continues to execute on its plan to increase its market share in the six state markets in which it operates, with the highlight being the #1 market share position in New Jersey throughout 2024. Maryland revenues continue to grow and TSND is now focused on readying its leading cultivation facility in Waterfall PA for the anticipated adult use vote to take place over the coming months. PA has had a number of false starts for adult use cannabis legislation but there has been growing acceptance among Republican lawmakers in the state. While timing of adult use in PA remains uncertain, there is growing support for the change and polls indicate a solid majority of voters are supportive of adult use.
The Trump administration’s intentions on cannabis reform remain unclear. There is a wide range of positions on the issue within the Republican party from favoring full legalization right to backtracking on progress already made. Slim majorities in both the House and Senate mean that substantive legislative reform will not be easy. However, these narrow majorities also help ensure that the current environment does not worsen from a legislative point of view. Ultimately, we believe that many of the Republican legislators will take their cue from the President so clarity on Trump’s intentions remains key.
Health Tech
Tech companies play an integral part in most patient treatments, with digital disruption transforming the traditional healthcare into a more connected, efficient, customer-centric ecosystem. Connected medical devices generate, collate, analyse and transmit substantial amounts of health data, which can be integrated into electronic health records (EHRs) via cloud computing and AI technologies, enabling more effective diagnosis, monitoring, and treatment.
We note a new top ten name in the commentary, Apple (APPL). Our view is that APPL has positioned itself focusing on consumer health technology, data-driven health research, and partnerships with medical institutions. Over the last decade, the company completed several strategic acquisitions to support its vision of wellness and healthcare that includes health monitoring, voice and AI-driven patient care administration and records management as well as medical information analytics. Their health focus has been built around acquisitions such as Novauris, a provider of speech recognition technology; a Finnish technology company that sold sleep tracking devices, Tueo Health, a digital tool that helped parents monitor and treat children with asthma; or Gliimpse, a tech start up that combines and organizes data that has become central to APPL products like HealthKit, ResearchKit, and CareKit. Increasingly, health companies are developing personalised, science-based products that provide diagnostics, act as digital tools, which are easy to wear and empower self-care.
Beyond these acquisitions, we are excited by the potential for APPL to continue adding health features to its Apple Watch. In addition to sleep tracking, heart rate monitoring (including ECG and A-fib), sleep monitoring, fall detection and other features, there are reports that APPL is looking to introduce blood pressure monitoring to the Apple Watch. Integrating these features into a user-friendly, cross platform solution is where we believe the company will differentiate its offering from other med tech alternatives.
Deloitte’s in a recent report “The rise of a dynamic consumer health market” suggests that the alternative health market is expected to grow at a CAGR of 21.5% from 2024 to 2030 driven by an ageing population and increasing awareness of holistic well-being. Apple has been steadily expanding its presence in the healthcare sector; Apple Watch has become a health and wellness device providing ECG and irregular heart rhythm notifications; measures blood oxygen levels; as well as activity and fitness tracking. The health app on iPhone centralizes user health data, step count, nutrition, sleep patterns, and lab results. The HealthKit allows third-party apps to integrate with Apple’s health ecosystem, enabling data sharing between apps, devices, and healthcare providers. We believe that Apple will continue to expand partnerships with hospitals, insurers, and pharmaceutical companies with the result being a fully integrated suite of wearable customizable health platforms to enhance patient outcomes.
Improving the ability to manage emotional overreactions is key to long-term success. President Trump’s economic agenda and RFK being confirmed as HHS has sparked optimism in some sectors with expectations of business-friendly policies along with some concerns in health care. Capital markets can adjust to good news and bad news but have no easy way to price in true uncertainty. The truth of the matter is, there is a significant gap between narrative and reality. The problem is that the stock market is a poor macro variable as it has a reputation for looking into the future and perhaps trading on a narrative it wants to see. We encourage investors in health care to welcome RFK’s appointment as progress from the previous Biden Administration’s empty promises and we look forward to positioning the portfolio accordingly once some clarity and announcements are made.
Options Strategy
Since the inception of the option writing program in September 2018, the Fund has generated significant income from options premiums of approximately CAD$5.25 million1. We will continue to utilize our options program to look for attractive opportunities given the volatility in the sector and to assist in rebalancing the portfolio in favor of names we prefer as we strongly believe that option writing can continue to add incremental value going forward.
During the month we used our options strategy to assist in rebalancing the portfolio in favor of names we prefer. We continue to write short-dated covered calls on stocks we believe will remain range-bound in the near term, generating above-average premiums, such as Merck & Co., Inc. (MRK). We also write cash-secured puts at out-of-the-money strike prices to increase our exposure to names already in the Fund, like Nike, Inc. (NKE), at more attractive prices.
Ninepoint Cannabis & Alternative Health Fund - Compounded Returns* as of January 31, 2025 (Series F NPP5421) | Inception Date - August 4, 2017
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|
Fund |
-2.1% |
-2.1% |
-18.7% |
-23.0% |
-28.2% |
-17.4% |
-8.2% |
1.0% |
*All returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at January 31, 2025.
Statistical Analysis
Fund |
|
|---|---|
Cumulative Returns |
7.7% |
Standard Deviation |
27.4% |
Sharpe Ratio |
-0.11 |
The Ninepoint Cannabis & Alternative Health Fund, launched in March of 2017 is Canada’s first actively managed mutual fund with a focus on the cannabis sector and remains open to new investors, available for purchase daily.
Charles Taerk & Douglas Waterson
The Portfolio Team
Faircourt Asset Management
Sub-Advisor to the Ninepoint Cannabis & Alternative Health Fund
1Faircourt Asset Management