Methodology Change | Cannabis Index | Effective Date 2nd March 2020

Today, on the 17^th February, 2020, Solactive AG announces the following changes to the methodology of the following Index (‘Affected Index’):

Rationale for methodology change

Over the past months, there has been a significant drop in the market of companies that are active in the cannabis business. Market capitalizations and liquidity of these companies have significantly decreased over the last months. In order to ensure the minimum number of 25 companies are included given the current average daily trading volume and market capitalization thresholds and the stability of the index, the following changes are made to the Index Guideline.

Additionally, Solactive has decided to make the following changes to the Index Guideline in order to bring the language of the current Index Guideline into line with Solactive standard language as well as reflecting the correct calculation hours of the Affected Index.

Changes to the Index Guideline

Section 2.1 Selection of the Index Components

From:

The initial composition of the Index as well as any ongoing adjustment is based on the following rules:

On the Selection Days, Solactive defines the Index Universe as defined in Section 4. Out of this universe, only companies that fulfill the following criteria are selected as components of the index.

Companies are only eligible if they generate at least 50% of their revenues from the cannabis industry value chain, as defined in Section 4, or if they are expected to derive at least 50% of their revenues from the cannabis industry value chain in the future. Further, companies are only eligible if their cannabis related business activities are legal under all laws, rules and regulations applicable to their business.

For the avoidance of doubt, companies in the U.S. that grow, produce and/or supply cannabis in violation of U.S. federal law are not eligible. Companies may supply products and perform services in the U.S. to end companies (including end companies that grow, produce, distribute, or sell cannabis or products derived from cannabis in a manner that is legal under state and local law but not under U.S. federal law) so long as the provision of such products and services by the company is legal under applicable federal, state and local law. 

Pure-Play Companies and Pre-Revenue Companies (as defined in Section 4) are ranked respectively according to free float market capitalization. The 40 highest ranking Pure-Play Companies are included in the index (if there are fewer than 40 Pure-Play Companies, all are included). The 10 highest ranking Pre-Revenue Companies are included in the index (if there are fewer than 10 Pre-Revenue Companies, all are included.

If fewer than 25 companies satisfy the criteria outlined in Section 4.f, the average daily trading volume is relaxed up to USD 1 million until the required number of 25 index components is reached. To clarify, the criterion is only relaxed up to the point that there are 25 components that pass the criterion.   

To:

The initial composition of the Index as well as any ongoing adjustment is based on the following rules:

On the Selection Days, Solactive defines the Index Universe as defined in Section 4. Out of this universe, only companies that fulfill the following criteria are selected as components of the index.

Companies are only eligible if they generate at least 50% of their revenues from the cannabis industry value chain, as defined in Section 4, or if they are expected to derive at least 50% of their revenues from the cannabis industry value chain in the future. Further, companies are only eligible if their cannabis related business activities are legal under all laws, rules and regulations applicable to their business.

For the avoidance of doubt, companies in the U.S. that grow, produce and/or supply cannabis in violation of U.S. federal law are not eligible. Companies may supply products and perform services in the U.S. to end companies (including end companies that grow, produce, distribute, or sell cannabis or products derived from cannabis in a manner that is legal under state and local law but not under U.S. federal law) so long as the provision of such products and services by the company is legal under applicable federal, state and local law. 

Pure-Play Companies and Pre-Revenue Companies (as defined in Section 4) are ranked respectively according to free float market capitalization. The 40 highest ranking Pure-Play Companies are included in the index (if there are fewer than 40 Pure-Play Companies, all are included). The 10 highest ranking Pre-Revenue Companies are included in the index (if there are fewer than 10 Pre-Revenue Companies, all are included.

If fewer than 25 companies satisfy the criteria outlined in Section 4.a to Section 4.g, the criteria will be relaxed sequentially in the following order until 25 components pass the criteria:

1. the average daily trading volume in the last three and/or six months is relaxed up to USD 1 million (USD 0.7 million for companies that are Index Components on the applicable Selection Day)
2. the market capitalization is relaxed up to USD 50 million (USD 40 million for companies that are Index Components on the applicable Selection Day)
3. the average daily trading volume in the last three and/or six months is relaxed up to USD 0.5 million (USD 0.35 million for companies that are Index Components on the applicable Selection Day)

To clarify, the criteria are only relaxed up to the point that there are 25 components that pass the criteria.

Section 1.4 Prices and calculation frequency

From:

The price of the Index is calculated on each Business Day based on the prices on the respective Exchanges on which the Index Components are listed. The most recent prices of all Index Components are used. Prices of Index Components not listed in the Index Currency are translated using spot foreign exchange rates quoted by Reuters. Should there be no current price available on Reuters, the most recent price or the Trading Price on Reuters for the preceding Trading Day is used in the calculation.

The Index is calculated every Business Day from 9:00 a.m. to 10:30 p.m., CET. In the event that data cannot be provided to Reuters or to the pricing services of Boerse Stuttgart AG, the Index cannot be distributed.

To:

The price of the Index is calculated on each Calculation Day based on the prices on the respective Exchanges on which the Index Components are listed. The most recent prices of all Index Components are used. Prices of Index Components not listed in the Index Currency are translated using spot foreign exchange rates quoted by Reuters. Should there be no current price available on Reuters, the most recent price or the Trading Price on Reuters for the preceding Trading Day is used in the calculation.

The Index is calculated every Calculation Day from 1:00 a.m. to 10:50 p.m., CET. In the event that data cannot be provided to Reuters or to the pricing services of Boerse Stuttgart GmbH, the Index cannot be distributed.

Section 4 Definitions

From:

The “Adjustment Day” is the second Friday in February, May, August and November. If that day is not a Calculation Day the Adjustment Day will be the immediately following Business Day.

To:

The “Adjustment Day” is the second Friday in February, May, August and November. If that day is not a Calculation Day the Adjustment Day will be the immediately following Calculation Day.