The
Cannabis ETF
(Ticker:
THCX)
A series of the
Spinnaker ETF Series
PROSPECTUS
July 1, 2022
This
prospectus contains information about The
Cannabis ETF that you should know before investing. You should read
this prospectus carefully before you invest or send money and keep it for future
reference. For questions, or for Shareholder Services, please call
1-800-773-3863.
Shares
of the Funds are listed and traded on NYSE Arca (“Exchange”)
The
securities offered by this prospectus have not been approved or
disapproved by the Securities and Exchange Commission, nor has the
Securities and Exchange Commission passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal
offense. |
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Back
Cover |
Investment
Objective
The Cannabis ETF (the “Fund”) seeks to provide
investment results that, before fees and expenses, correspond generally to the
total return performance of the Innovation Labs Cannabis Index (the
“Index”).
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). Investors purchasing or selling Shares in
the secondary market may be subject to costs (including customary brokerage
commissions) charged by their broker. These costs are not included in the
expense example below.
Annual
Fund Operating Expenses
(ongoing
expenses that you pay each year as a percentage of the value of your
investment) |
Management
Fees |
0.95% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.95% |
Fee
Waiver and/or Expense Limitation1 |
(0.20%) |
Net
Annual Fund Operating Expenses |
0.75% |
1.
Example. You may
also incur usual and customary brokerage commissions and other charges when
buying or selling shares of the Fund, which are not reflected in the example
that follows. This Example is intended to help you compare the cost of owning
shares of the Fund with the cost of investing in other funds. The Example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then redeem (or you hold) all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would
be:
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$77 |
$283 |
$506 |
$1,148 |
Portfolio
Turnover. The Fund may pay transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable
account. These costs, which are not reflected in Annual Fund Operating Expenses
or in the Example, affect the Fund's performance. For the most recent fiscal
year ending February 28, 2022, the Fund’s portfolio turnover rate was
54.09% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund invests at least 80% of its total assets in the component securities of the
Index. The Fund uses a “passive” or indexing approach to try to achieve its
investment objective. Unlike many investment companies, the Fund does not try to
“beat” the Index and does not seek temporary defensive positions when markets
decline or appear overvalued. The Fund will also invest, under normal
circumstances, at least 80% of its net assets, plus borrowings for investment
purposes, in exchange listed common stock (or corresponding American
Depositary Receipts (“ADRs”) of Cannabis Companies. “Cannabis Companies” are
companies, that have a business interest in the legal cannabis-based
pharmaceutical and consumer wellness & product markets. Cannabis is (i)
marijuana (or products derived from marijuana) and (ii) hemp (or products
derived from hemp, which includes CBD-based products (i.e., products that
contain cannabidiol). A company has a business interest in the legal
cannabis-based pharmaceutical and consumer wellness & product markets
if a significant percentage (at least 50%) of its revenues are derived
from such activity. As of the date of this prospectus, Cannabis Companies
do not include
companies that grow or distribute marijuana inside the U.S. (unless and until
such time as the cultivation, production, or distribution of such marijuana or
products become legal under U.S. federal law). As of the date of this
prospectus, Cannabis Companies may, however, include companies that have a
business interest in the legal hemp-based pharmaceutical and consumer wellness
& product markets within the United States.
The
Fund uses a replication strategy. A replication strategy is an indexing strategy
that involves investing in the securities of the Index in approximately the same
proportions as in the Index. However, the Fund may utilize a representative
sampling strategy with respect to the Index when a replication strategy might be
detrimental to shareholders, such as when there are practical difficulties or
substantial costs involved in compiling a portfolio of equity securities to
follow the Index, in instances in which a security in the Index becomes
temporarily illiquid, unavailable, or less liquid, or as a result of legal
restrictions or limitations (such as tax diversification requirements) that
apply to the Fund but not the Index.
The
Innovation Labs Cannabis Index
The
Index is a proprietary, rules-based index designed to track the performance of a
portfolio of Cannabis Companies. These Cannabis Companies are primarily located
in the United States and Canada, but may be located in other countries as
well.
The
initial universe of Index constituents (the “Index Universe”) consists of
publicly listed Cannabis Companies that are involved in the legal cannabis
industry. “Legal” refers to being permitted under the applicable (i) controlled
substance or (ii) food, drug, and cosmetics, or equivalent laws and regulations
under whose jurisdiction the Cannabis Company is subject that govern the
cultivation, production or distribution, for medical or non-medical purposes, of
cannabis in a particular country. Cannabis Companies that have a business
interest in the legal hemp-based pharmaceutical and consumer wellness &
product markets within the United States are companies that have business
interests in “hemp” as defined in the Agricultural Improvement Act of 2018, also
known as the “Farm Bill”. “Hemp”, as defined in the Farm Bill, was exempted from
the definition of “marijuana” under the CSA, which effectively allows companies
to legally grow, manufacture, and produce hemp in the United States, if done so
in compliance with the provisions of the Farm Bill1.
The
index provider eliminates from the Index Universe any Cannabis Company that it
knows, based on the Cannabis Company’s publicly available information, to not be
operating legally. “Publicly available information” is information available in
a company’s publicly available filings with the US Securities and Exchange
Commission, publicly available filings with the thirteen Canadian provincial and
territorial securities regulatory authorities (“Canadian Securities
Administrators”), publicly available filings with equivalent securities
authorities in other applicable countries, investor presentations on posted on a
company’s website, and press releases or other public statement by the
company. The index provider also eliminates from the Index Universe any
Cannabis Company that it knows, based on the Cannabis Company’s publicly
available information, to invest in other companies (“Related Companies”) that
the index provider knows, based on the Related Company’s publicly available
information, to not be operating legally. These assessments are made at the time
a Cannabis Company is added to the Index and upon any reconstitution of the
Index. Upon the monthly rebalancing
and reconstitution of the Index, the Advisor will also examine the Cannabis
Company’s publicly available information in order to eliminate from the Fund’s
portfolio any Cannabis Company that it knows to not be operating legally. If,
through their investment process, the Advisor or Sub-Advisor identifies or
becomes aware that a particular company no longer meets the Fund’s definition of
Cannabis Companies, the Fund will immediately sell that position.
1 The
Cannabis sativa L. plant produces both
“hemp” and “marijuana” – whether a substance is one or the other impacts how the
substance is regulated in the United States and whether it is legal or not from
a federal perspective. Section 812 of the CSA identifies “marihuana” or
“marijuana” as a Schedule 1 controlled substance. 21 U.S.C. § 802(16)(A) of
the Controlled Substances Act (“CSA”) defines “marihuana” (referred to hereafter
as “marijuana”) as “all parts of the plant Cannabis sativa L., whether growing or not;
the seeds thereof; the resin extracted from any part of such plant; and every
compound, manufacture, salt, derivative, mixture, or preparation of such plant,
its seeds or resin”. Pursuant to 21 U.S.C. § 841, it is a prohibited act to
knowingly or intentionally manufacture, distribute, or dispense, or possess with
an intent to manufacture, distribute, or dispense, a controlled
substance.
The Farm
Bill modified a portion of the CSA to identify “hemp” as an exclusion to the
definition of marijuana. The Farm Bill also amended the Agricultural Marketing
Act of 1946 to define “hemp” as “the plant Cannabis sativa L. and any part of that plant, including the
seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids,
salts, and salts of isomers, whether growing or not, with a delta-9
tetrahydrocannabinol “THC” concentration of not more than 0.3 percent on a dry
weight basis.” The Farm Bill further excludes the mature stalks of the
Cannabis sativa L. plant; the fiber
produced from such stalks; the oil or cake made from the seeds of such plant;
any other compound, manufacture, salt, derivative, mixture, or preparation of
such mature stalks (except the resin extracted therefrom), fiber, oil, or cake;
or the sterilized seed of such plant, which is incapable of
germination.
So, hemp and hemp derivatives
that meet the definition of “hemp” established in the Farm Bill and modified in
the Agricultural Marketing Act of 1946, are not deemed Schedule I controlled
substances. Companies may grow and produce hemp legally in compliance with the
Farm Bill and companies doing so would not be deemed in violation of federal
law.
The
Index Universe is then screened to not include stocks that have a market
capitalization below $100 million and stocks listed on the Canadian Securities
Exchange (the “CSE”). The Index constituents must be listed on exchanges that require compliance with all laws, rules
and regulations applicable to their business, including U.S. federal laws. As of
the date of this prospectus, the exchanges identified by the Index Provider that
meet this criterion are the New York Stock Exchange (“NYSE”), Nasdaq Stock
Market (“Nasdaq”), TSX Exchange (“TSX”), TSX Venture Exchange (“TSX Venture”)
and the Australian Securities Exchange (“ASX”), but other exchanges could be
identified and companies listed on such exchanges could be included in the Index
at any time. Constituents must also have traded at least 200,000 shares during
the month of reconstitution. At the time of monthly reconstitution, the Index
constituents are weighted according to their market capitalization with the
individual weight of an Index constituent capped at eight percent (8.00%),
with the excess weighting proportionately distributed between the remaining
constituents.
The
Index is rebalanced and reconstituted monthly, effective at the close of trading
on the second Friday of the month. The Fund is rebalanced and reconstituted in
accordance with the Index.
The
Index is developed by Innovation Labs Ltd. and licensed to Innovation Shares
LLC, the Fund's Index Provider. The Index is calculated, maintained, and
distributed by an independent, third-party index calculation agent that is not
affiliated with the Fund, the Advisor, or Merlin Capital, LLC, d/b/a Merlin
Asset Management (“Merlin” or the “Sub-Advisor”).
As
of February 28, 2022, the Index had 29 constituents, and the largest stocks and
their weightings in the Index were Fire and Flower Corp. (5.81%), Tilray Brands
Inc. (5.67%%), Cronos Group Inc. (5.34%), Village Farms International Inc.
(5.26%), and AFC Gamma Inc. (5.05%).
To
generate income for the Fund, the Fund may lend its portfolio securities to
broker-dealers (including the Fund’s custodian) and other financial institutions
desiring to borrow securities to complete transactions and for other purposes.
In connection with such loans, the Fund receives liquid collateral equal to at
least 102% of the value of the domestic portfolio securities being lent and 105%
of the value of the foreign portfolio securities being lent. This collateral is
marked to market on a daily basis and will be maintained in an amount equal to
at least the percentages noted above of the portfolio securities being lent. The
Fund will also receive fee income in exchange for the securities it lends.
Industry Concentration Policy: The Fund will
concentrate its investments (i.e., hold more than 25% of its net assets) in a
particular industry or group of related industries to approximately the same
extent that the Index is concentrated. As of February 28, 2022, the Index was
concentrated in the healthcare industry. The Fund is non-diversified. The Fund’s
focus on Cannabis Companies may result in volatile
performance.
Principal Risks of Investing in the
Fund
Risk
is inherent in all investing. The loss of your money is a principal risk of
investing in the Fund. Investors should consider the following risk factors and
special considerations associated with investing in the Fund, which may cause
you to lose money. The following principal risk factors have
been identified for the Fund. The Fund is subject to certain risks, including
the principal risks noted below, any of which may adversely affect the Fund’s
net asset value per shares (“NAV”), trading price, yield, total return, and
ability to meet its investment objectives. See also the sections “Additional
Information about the Fund's Principal Investment Risks” and “Additional Risk
Considerations” for additional information about the Fund's risk
factors.
United States Regulatory Risks of
the Cannabis Industry: The
possession and use of marijuana, even for medical purposes, is illegal under
federal and certain states' laws, which may negatively impact the value of the
Fund's investments. Use of marijuana is regulated by both the federal government
and state governments, and state and federal laws regarding marijuana often
conflict. Even in those states in which the use of marijuana has been legalized,
its possession and use remains a violation of federal law. Federal law
criminalizing the use of marijuana pre-empts state laws that legalizes its use
for medicinal and recreational purposes. Members of the Trump Administration,
including former Attorney General Jeff Sessions, have made statements indicating
that the Trump Administration intends to take a more aggressive stance on
federal marijuana laws. Any such change in the federal government's enforcement
of current federal laws could adversely affect the ability of the companies in
which the Fund invests to possess or cultivate marijuana, including in
connection with pharmaceutical research, or it could shrink the customer pool
for certain of the Fund's portfolio companies. Any of these outcomes would
negatively affect the profitability and value of the Fund's investments. The
Cannabis Companies and Pharmaceutical Companies may never be able to legally
produce and sell products in the United States or other national or local
jurisdictions.
Marijuana
is a Schedule I controlled substance under the Controlled Substances Act (“CSA”)
(21 U.S.C. § 811), meaning that it has a high potential for abuse, has no
currently “accepted medical use” in the United States, lacks accepted safety for
use under medical supervision, and may not be prescribed, marketed or sold in
the United States.
Facilities
conducting research, manufacturing, distributing, importing or exporting, or
dispensing controlled substances must be registered (licensed) to perform these
activities and have the security, control, recordkeeping, reporting and
inventory mechanisms required by the Drug Enforcement Administration (“DEA”) to
prevent drug loss and diversion. Failure to obtain the necessary registrations
or comply with necessary regulatory requirements may significantly impair the
ability of certain companies in which the Fund invests to pursue medical
marijuana research or to otherwise cultivate, possess or distribute
marijuana.
The
enactment of the Farm Bill changed the legal landscape in the United States with
respect to the manufacturing, distribution and sale of hemp and hemp
derivatives, including CBD. Among other things, the act: (A) legally
distinguishes hemp from marijuana by defining “hemp” as the Cannabis sativa L. plant (or any part of the
plant) and extracts of it, that contain no more than 0.3% Tetrahydrocannabinol
(“THC”) (as calculated on a dry weight basis); (B) exempts “hemp” from the
definition of “marijuana” and, therefore, from both DEA interference and the
restrictions imposed by the CSA, and (C) Expressly permits the interstate sale
and transportation of hemp products. While the enactment of the Farm Bill was
dramatically and materially favorable for the CBD landscape, some legal
considerations remain with respect to CBD products. At present, the
primary risk relates to uncertainty in the U.S. Food and Drug Administration’s
(“FDA”) actions as it adapts to this new law.
In
the United States, CBD and products which contain CBD are and will be subject to
the Federal Food, Drug and Cosmetic Act, which includes the Dietary Supplement
Health and Education Act of 1994 (“DSHEA”) and significant federal regulations.
Those statutory provisions and regulations include but are not limited to (i)
Good Manufacturing Practices (ii) legally permitted health-related claims
(iii) the requirement for significant safety dossiers (iv) detailed
labeling requirements, (v) requirements for competent and reliable scientific
substantiation for health-related claims and (vi) compliance with a
statute that prohibits the inclusion of an ingredient in a dietary
supplement or food that was first authorized for study as a drug (“the IND
Provision”“ or “the Exclusionary Provision.” The FDA has publicly taken
the present position the CBD cannot be sold in dietary supplements or foods due
to this provision.
Non-U.S. Regulatory Risks of the
Cannabis Industry: The
companies in which the Fund invests are subject to various laws, regulations and
guidelines relating to the manufacture, management, transportation, storage and
disposal of cannabis, as well as being subject to laws and regulations relating
to health and safety, the conduct of operations and the protection of the
environment. Even if a company's operations are permitted under current law,
they may not be permitted in the future, in which case such company may not be
in a position to carry on its operations in its current locations. Additionally,
controlled substance legislation differs between countries and legislation in
certain countries may restrict or limit the ability of certain companies in
which the Fund invests to sell their products.
Operational Risks of the Cannabis
Industry: Companies involved
in the cannabis industry face intense competition, may have limited access to
the services of banks, may have substantial burdens on company resources due to
litigation, complaints or enforcement actions, and are heavily dependent on
receiving necessary permits and authorizations to engage in medical cannabis
research or to otherwise cultivate, possess or distribute cannabis. Since the
cultivation, possession, and distribution of cannabis can be illegal under
United States federal law under certain circumstances, federally regulated
banking institutions may be unwilling to make financial services available to
growers and sellers of cannabis.
Securities Lending
Risk. There are certain risks
associated with securities lending, including the risk that when lending
portfolio securities, the securities may not be available to the Fund on a
timely basis and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price.
Volatility Risk. The Fund
may have investments that appreciate or decrease significantly in value of short
periods of time. This may cause the Fund’s net asset value per share to
experience significant increases or declines in value over short periods of
time, however, all investments long- or short-term are subject to risk of
loss.
Small and Mid-Cap Securities Risk.
The earnings and prospects of small and medium sized companies are more
volatile than larger companies and may experience higher failure rates than
larger companies. Small and medium sized companies normally have a lower
trading volume than larger companies, which may tend to make their market price
fall more disproportionately than larger companies in response to selling
pressures and may have limited markets, product lines, or financial resources
and lack management experience.
Risks Related to Investing in
Canada. Because the
investments of the Fund are currently geographically concentrated in Canadian
companies or companies that have a significant presence in Canada, investment
results could be dependent on the financial condition of the Canadian economy.
The Canadian economy is reliant on the sale of natural resources and
commodities, which can pose risks such as the fluctuation of prices and the
variability of demand for exportation of such products. Changes in spending on
Canadian products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy.
COVID-19 Risk. The outbreak
of an infectious respiratory illness caused by a novel coronavirus known as
COVID-19 has resulted in travel restrictions, closed international borders,
enhanced health screenings at ports of entry and elsewhere, disruption of and
delays in healthcare service preparation and delivery, prolonged quarantines,
cancellations, supply chain disruptions, and lower consumer demand, as well as
general concern and uncertainty. The impact of COVID-19, and other infectious
illness outbreaks that may arise in the future, could adversely affect the
economies of many countries or the entire global economy, individual issuers and
capital markets in ways that cannot necessarily be foreseen. In addition, the
impact of infectious illnesses in emerging market countries may be greater due
to generally less established healthcare systems. Public health crises caused by
the COVID-19 outbreak may exacerbate other pre-existing political, social and
economic risks in certain countries or globally. As such, issuers of debt
securities with operations, productions, offices, and/or personnel in (or other
exposure to) areas affected with the virus may experience significant
disruptions to their business and/or holdings. The potential impact on the
credit markets may include market illiquidity, defaults and bankruptcies, among
other consequences, particularly on issuers in the airline, travel and leisure
and retail sectors. The extent to which COVID-19 will affect the Fund, the
Fund’s service providers’ and/or issuer’s operations and results will depend on
future developments, which are highly uncertain and cannot be predicted,
including new information that may emerge concerning the severity of COVID-19
and the actions taken to contain COVID-19. Economies and financial markets
throughout the world are becoming increasingly interconnected. As a result,
whether or not the Fund invests in securities of issuers located in or with
significant exposure to countries experiencing economic, political and/or
financial difficulties, the value and liquidity of the Fund’s investments may be
negatively affected by such events. If there is a significant decline in the
value of the Fund’s portfolio, this may impact the Fund’s asset coverage levels
for certain kinds of derivatives and other portfolio transactions. The duration
of the COVID-19 outbreak and its impact on the global economy cannot be
determined with certainty.
Sampling Risk. The
Fund's use of a representative sampling approach, if used, could result in its
holding a smaller number of securities than are in the Index. As a result,
an adverse development with an issuer of securities held by the Fund could
result in a greater decline in NAV than would be the case if the Fund held all
of the securities in the Index.
Concentration Risk:
If the Fund invests more heavily in a particular industry, the value of its
shares may be especially sensitive to factors and economic risks that
specifically affect that industry. As a result, the Fund's share price may
fluctuate more widely than the value of shares of a mutual fund that invests in
a broader range of industries. Additionally, some industries could be subject to
greater government regulation than other industries. Therefore, changes in
regulatory policies for those industries may have a material effect on the value
of securities issued by companies in those industries. The industries in which
the Fund may invest, directly or indirectly, will vary based on the investments
of the Index.
• |
Biotechnology Company Risk: A
biotechnology company’s valuation can often be based largely on the
potential or actual performance of a limited number of products and can
accordingly be greatly affected if one of its products proves, among other
things, unsafe, ineffective or unprofitable. Biotechnology companies are
subject to regulation by, and the restrictions of, the FDA, the U.S.
Environmental Protection Agency, state and local governments, and foreign
regulatory authorities. |
• |
Pharmaceutical Company
Risk: Companies in the pharmaceutical industry can be
significantly affected by, among other things, government approval of
products and services, government regulation and reimbursement rates,
product liability claims, patent expirations and protection and intense
competition. |
Valuation Risk. The sales
price that the Fund could receive for a security may differ from the Fund's
valuation of the security and may differ from the value used by Index,
particularly for securities that trade in low volume or volatile markets or that
are valued using a fair value methodology. In addition, the value of the
securities in the Fund's portfolio may change on days when shareholders will not
be able to purchase or sell the Fund's shares.
Authorized Participant Risk:
Only an authorized participant (“Authorized Participant” or “APs”) may
engage in creation or redemption transactions directly with the Fund. The Fund
has a limited number of institutions that may act as Authorized Participants on
an agency basis (i.e., on behalf of other market participants). Authorized
Participant concentration risk may be heightened for exchange-traded funds
(ETFs), such as the Fund, that invest in securities issued by non-U.S. issuers
or other securities or instruments that have lower trading volumes.
Early Close/Trading Halt
Risk: An exchange or market may close or issue trading halts on specific
securities, or the ability to buy or sell certain securities or financial
instruments may be restricted, which may prevent the Fund from buying or selling
certain securities or financial instruments. In these circumstances, the Fund
may be unable to rebalance its portfolio, may be unable to accurately price its
investments and may incur substantial trading losses.
Equity Securities Risk. Equity securities are subject to changes in
value, and their values may be more volatile than those of other asset classes.
These changes in value may result from factors affecting individual issuers,
industries or the stock market as a whole. In addition, equity markets tend to
be cyclical which may cause stock prices to fall over short or extended periods
of time.
ETF Structure Risks.
The Fund is structured as an ETF and as a result is subject to the special
risks, including:
• |
Not Individually Redeemable.
Shares are not individually redeemable and may be redeemed by the Fund at
NAV only in large blocks known as “Creation Units.” You may incur
brokerage costs purchasing enough Shares to constitute a Creation
Unit. |
• |
Trading Issues. An active trading
market for the Fund's shares may not be developed or maintained. Trading
in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares
inadvisable, such as extraordinary market volatility. There can be
no assurance that Shares will continue to meet the listing requirements of
the Exchange. If the Fund's shares are traded outside a
collateralized settlement system, the number of financial institutions
that can act as authorized participants that can post collateral on an
agency basis is limited, which may limit the market for the Fund's
shares. |
• |
Cash purchases. To the extent Creation
Units are purchased by APs in cash instead of in-kind, the Fund will incur
certain costs such as brokerage expenses and taxable gains and losses.
These costs could be imposed on the Fund and impact the Fund’s NAV if not
fully offset by transaction fees paid by the
APs. |
• |
Market Price Variance Risk. The
market prices of Shares will fluctuate in response to changes in NAV and
supply and demand for Shares and will include a “bid-ask spread” charged
by the exchange specialists, market makers or other participants that
trade the particular security. There may be times when the market
price and the NAV vary significantly. This means that Shares may
trade at a discount to NAV. |
▪ |
In
times of market stress, market makers may step away from their role market
making in shares of ETFs and in executing trades, which can lead to
differences between the market value of Fund shares and the Fund's net
asset value. |
▪ |
To
the extent Authorized Participants exit the business or are unable to
process creations or redemptions and no other Authorized Participant can
step in to do so, there may be a significantly reduced trading market in
the Fund's shares, which can lead to differences between the market value
of Fund shares and the Fund's net asset
value. |
▪ |
The
market price for the Fund's shares may deviate from the Fund's net asset
value, particularly during times of market stress, with the result that
investors may pay significantly more or receive significantly less for
Fund shares than the Fund's net asset value, which is reflected in the bid
and ask price for Fund shares or in the closing
price. |
▪ |
When
all or a portion of an ETFs underlying securities trade in a market that
is closed when the market for the Fund's shares is open, there may be
changes from the last quote of the closed market and the quote from the
Fund's domestic trading day, which could lead to differences between the
market value of the Fund's shares and the Fund's net asset
value. |
▪ |
In
stressed market conditions, the market for the Fund's shares may become
less liquid in response to the deteriorating liquidity of the Fund's
portfolio. This adverse effect on the liquidity of the Fund's shares
may, in turn, lead to differences between the market value of the Fund's
shares and the Fund's net asset
value. |
Foreign Securities Investment
Risk. Returns on investment in foreign stocks could be more volatile
than, or trail the returns on, investments in U.S. stocks.
• |
Currency Risk: Indirect and direct
exposure to foreign currencies subjects the Fund to the risk that
currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods
of time for a number of reasons, including changes in interest rates and
the imposition of currency controls or other political developments in the
U.S. or abroad. |
• |
Depositary Receipts Risk: The Fund may
invest in depositary receipts. Investment in ADRs and GDRs may be less
liquid than the underlying shares in their primary trading market and
GDRs, many of which are issued by companies in emerging markets, may be
more volatile and less liquid than depositary receipts issued by companies
in more developed markets. |
• |
Foreign Market and Trading Risk: The
trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign
markets also may have clearance and settlement procedures that make it
difficult for the Fund to buy and sell securities. These factors could
result in a loss to the Fund by causing the Fund to be unable to dispose
of an investment or to miss an attractive investment opportunity, or by
causing Fund assets to be uninvested for some period of
time. |
• |
Foreign Securities Risk: The Fund
invests a significant portion of its assets directly in securities of
issuers based outside of the U.S., or in depositary receipts that
represent such securities. Investment in securities of non-U.S. issuers
involve certain risk that may not be present with investments in
securities of U.S. issuers, such as risk of loss due to foreign currency
fluctuations or to political or economic instability. There may be less
information publicly available about non-U.S. issuers. Non-U.S. issuers
may also be subject to different accounting, auditing, financial
reporting, and investor protection standards than U.S.
issuers. |
• |
Political and Economic Risk: The Fund is
subject to foreign political and economic risk not associated with U.S.
investments, meaning that political events, social and economic events,
and natural disasters occurring in a country where the Fund invests could
cause the Fund's investments in that country to experience gains or
losses. The Fund also could be unable to enforce its ownership rights or
pursue legal remedies in countries where it
invests. |
• |
Privatization Risk: Several foreign
countries in which the Fund invests have begun a process of privatizing
certain entities and industries. Privatized entities may lose money or be
re-nationalized. |
Market Risk. The values of equity securities in the Index
could decline generally or could underperform other investments.
New Advisor Risk. The
Advisor has only recently begun serving as an investment advisor to ETFs. As a
result, investors do not have a long-term track record of managing an ETF from
which to judge the Advisor, and the Advisor may not achieve the intended result
in managing the Fund.
New Fund Risk. The Fund has no history of operations for
investors to evaluate.
Non-Diversification Risk.
The
Fund's portfolio may focus on a limited number of investments and will be
subject to potential for volatility than a diversified
fund.
Passive Investment Risk.
The Fund is not actively managed and therefore would not sell an equity security
due to current or projected underperformance of such security, industry or
sector, unless that security is removed from the Index.
Tracking Error Risk. The Fund's return may not match or achieve a
high degree of correlation with the return of the Index. To the extent the Fund
utilizes a sampling approach, it may experience tracking error to a greater
extent than if the Fund sought to replicate the Index.
Performance
Information
The following
bar chart and tables provide an indication of the risks of investing in the Fund
by showing changes in the performance of the Fund from year to year and by
showing how the average annual total returns of the Fund compared to that of a
broad-based securities market index. The Fund’s past
performance is not necessarily an indication of how the Fund will perform in the
future. Updated performance information is available online at
https://thcxetf.com/fund/thcx-performance.
Calendar Year
Returns
During
the period shown in the bar chart above, the Fund’s highest quarterly return
was 57.33% (quarter ended
March 31, 2021) and the
Fund’s lowest quarterly return was
-36.89% (quarter ended March 31, 2020).
The Fund’s
year-to-date return as of March 31,
2022,
was -12.22%
Average Annual Total
Returns Period Ended December 31, 2021 |
Past
1 Year |
Since Inception1 |
The
Cannabis ETF Return Before
Taxes |
(31.24)% |
(32.83)% |
Return
After taxes on Distributions |
(31.24)% |
(33.16)% |
Return
After taxes on Distributions and sale of shares |
(18.49)% |
(22.95)% |
Innovation Labs
Cannabis Index (reflects no deductions for
fees, expenses, or taxes) |
(31.73)% |
(34.48)% |
1
Management
Investment Advisor. OBP Capital, LLC, is the
Advisor to the Fund.
Investment Sub-Advisor. Merlin Capital, LLC,
d/b/a Merlin Asset Management is the Sub-Advisor to the Fund.
Portfolio Manager. Michael Obuchowski, Ph.D.,
the founder and managing member of the Sub-Advisor, has served as the Fund’s
portfolio manager since its inception in July 2019.
Purchase
and Sale of Fund Shares
The
Fund will issue and redeem Shares at NAV only in large blocks of 25,000 shares
(each block of shares is called a “Creation Unit”). Creation Units are issued
and redeemed for cash and/or in-kind for securities. Except when aggregated in
Creation Units in transactions with APs, the shares are not redeemable
securities of the Fund.
Individual
shares of the fund may only be bought and sold in the secondary market through a
broker or dealer at a market price. Because ETF shares trade at market prices
rather than NAV, shares may trade at a price greater than NAV (premium) or less
than NAV (discount). An investor may incur costs attributable to the difference
between the highest price a buyer is willing to pay to purchase shares of the
Fund (bid) and the lowest price a seller is willing to accept for shares of the
Fund (ask) when buying or selling shares in the secondary market (the “bid-ask
spread”). You may access recent information, including information on the Fund’s
NAV, market price, premiums and discounts, and bid-ask spreads, on the Fund’s
website at https://thcxetf.com/fund/thcx-performance.
Tax
Information
Fund
distributions are generally taxable to you as ordinary income or capital gains,
unless you are investing through a tax deferred arrangement, such as a 401(k)
plan or an IRA. Distributions on investments made through tax deferred
arrangements will generally be taxed later upon withdrawal of assets from those
accounts.
Payments
to Broker-Dealers and
other
Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), OBP or other related companies, may pay the
intermediary for marketing activities and presentations, educational training
programs, conferences, the development of technology platforms and reporting
systems, or other services related to the sale or promotion of the Fund. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES,
AND RISKS
The
Fund, using an “indexing” investment approach, seeks to provide investment
results that, before fees and expenses, correspond generally to the total return
performance of the Index. The Fund's investment objective may be changed by the
Board of Trustees upon 60 days' written notice to shareholders. The Fund’s
policy to, under normal circumstances, invest at least 80% of its net assets,
plus borrowings for investment purposes, in Cannabis Companies may also be
changed by the Board of Trustees upon 60 days’ written notice to
shareholders.
The
Fund seeks correlation over time of 0.95 or better between the Fund’s
performance and the performance of the Index; a figure of 1.00 would represent
perfect correlation.
The
Fund will invest at least 80% of its total assets in the component securities of
the Index. The Fund uses a “passive” or indexing approach to try to achieve its
investment objective. Unlike many investment companies, the Fund does not try to
“beat” the Index and does not seek temporary defensive positions when markets
decline or appear overvalued. The Fund will also invest, under normal
circumstances, at least 80% of its net assets, plus borrowings for investment
purposes, in Cannabis Companies.
The
Fund uses a replication strategy. A replication strategy is an indexing strategy
that involves investing in the securities of the Index in approximately the same
proportions as in the Index. However, the Fund may utilize a representative
sampling strategy with respect to the Index when a replication strategy might be
detrimental to shareholders, such as when there are practical difficulties or
substantial costs involved in compiling a portfolio of equity securities to
follow the Index, in instances in which a security in the Index becomes
temporarily illiquid, unavailable, or less liquid, or as a result of legal
restrictions or limitations (such as tax diversification requirements) that
apply to the Fund but not the Index.
The
Innovation Labs Cannabis Index
The
Index is a proprietary, rules-based index designed to track the performance of a
portfolio of Cannabis Companies. These Cannabis Companies are primarily located
in the United States and Canada, but may be located in other countries as
well.
The
Index Universe consists of publicly listed Cannabis Companies that are involved
in the legal cannabis industry. “Legal” refers to being permitted under the
applicable (i) controlled substance or (ii) food, drug, and cosmetics, or
equivalent laws and regulations under whose jurisdiction the Cannabis Company is
subject that govern the cultivation, production or distribution, for medical or
non-medical purposes, of cannabis in a particular country. Cannabis Companies
that have a business interest in the legal hemp-based pharmaceutical and
consumer wellness & product markets within the United States are companies
that have business interests in “hemp” as defined in the Agricultural
Improvement Act of 2018, also known as the “Farm Bill”. “Hemp”, as defined in
the Farm Bill, was exempted from the definition of “marijuana” under the CSA,
which effectively allows companies to legally grow, manufacture, and produce
hemp in the United States, if done so in compliance with the provisions of the
Farm Bill.
The
index provider eliminates from the Index Universe any Cannabis Company that it
knows, based on the Cannabis Company’s publicly available information, to not be
operating legally. “Publicly available information” is information available in
a company’s publicly available filings with the US Securities and Exchange
Commission, publicly available filings with the Canadian Securities
Administrators, publicly available filings with equivalent securities
authorities in other applicable countries, investor presentations on posted on a
company’s website, and press releases or other public statement by the
company. The index provider also eliminates from the Index Universe any
Cannabis Company that it knows, based on the Cannabis Company’s publicly
available information, to invest in Related Companies that the index provider
knows, based on the Related Company’s publicly available information, to not be
operating legally. These assessments are made at the time a Cannabis Company is
added to the Index and upon any reconstitution of the Index. Upon the monthly
rebalancing and reconstitution of the Index, the Advisor will also examine the
Cannabis Company’s publicly available information in order to eliminate from the
Fund’s portfolio any Cannabis Company that it knows to not be operating legally.
If, through their investment process, the Advisor or Sub-Advisor identifies or
becomes aware that a particular company no longer meets the Fund’s definition of
Cannabis Companies, the Fund will immediately sell that position.
The
Index Universe is then screened to not include stocks that have a market
capitalization below $100 million and stocks listed on the CSE. The Index
constituents must be listed on exchanges that require compliance with all laws,
rules and regulations applicable to their business, including U.S. federal laws.
As of the date of this prospectus, the exchanges identified by the Index
Provider that meet this criterion are the NYSE, Nasdaq, TSX, TSX Venture and the
ASX, but other exchanges could be identified and companies listed on such
exchanges could be included in the Index at any time. Constituents must also
have traded at least 200,000 shares during the month of reconstitution. At the
time of monthly reconstitution, the Index constituents are weighted according to
their market capitalization with the individual weight of an Index constituent
capped at eight percent (8.00%), with the excess weighting proportionately
distributed between the remaining constituents.
The
Index is rebalanced and reconstituted monthly, effective at the close of trading
on the second Friday of the month. The Fund is rebalanced and reconstituted in
accordance with the Index.
The
Index is developed by Innovation Labs Ltd. and licensed to Innovation Shares
LLC, the Fund's Index Provider. The Index is calculated, maintained, and
distributed by an independent, third-party index calculation agent that is not
affiliated with the Fund, the Advisor, or Sub-Advisor.
As
of February 28, 2022, the Index had 29 constituents, and the largest stocks and
their weightings in the Fore and Flower Corp. (5.81%), Tilray Brands Inc.
(5.67%), Cronos Group Inc. (5.34%),Village Farms International Inc. (5.26%), and
AFC Gamma Inc. (5.05%).
To
generate income for the Fund, the Fund may lend its portfolio securities to
broker-dealers (including the Fund’s custodian) and other financial institutions
desiring to borrow securities to complete transactions and for other purposes.
In connection with such loans, the Fund receives liquid collateral equal to at
least 102% of the value of the domestic portfolio securities being lent and 105%
of the value of the foreign portfolio securities being lent. This collateral is
marked to market on a daily basis, and will be maintained in an amount equal to
at least the percentages noted above of the portfolio securities being lent. The
Fund will also receive fee income in exchange for the securities it lends.
Industry Concentration Policy: The Fund will
concentrate its investments (i.e., hold more than 25% of its net assets) in a
particular industry or group of related industries to approximately the same
extent that the Index is concentrated. As of February 28, 2022, the Index was
concentrated in the healthcare industry. The Fund is non-diversified. The Fund’s
focus on Cannabis Companies may result in volatile performance.
Investors
should consider the following risk factors and special considerations associated
with investing in the Fund, which may cause you to lose money. The following
principal risk factors have been identified for the Fund. See also the sections
“Additional Information about the Fund's Principal Investment Risks” and
“Additional Risk Considerations” for additional information about the Fund's
risk factors.
Authorized Participant Risk:
Only an Authorized Participant may engage in creation or redemption
transactions directly with the Fund. The Fund has a limited number of
institutions that may act as Authorized Participants on an agency basis (i.e.,
on behalf of other market participants). Authorized Participant concentration
risk may be heightened for exchange-traded funds (ETFs), such as the Fund, that
invest in securities issued by non-U.S. issuers or other securities or
instruments that have lower trading volumes.
United States Regulatory Risks of
the Cannabis Industry: The
possession and use of marijuana, even for medical purposes, is illegal under
federal and certain states' laws, which may negatively impact the value of the
Fund's investments. Use of marijuana is regulated by both the federal government
and state governments, and state and federal laws regarding marijuana often
conflict. Even in those states in which the use of marijuana has been legalized,
its possession and use remains a violation of federal law. Federal law
criminalizing the use of marijuana pre-empts state laws that legalizes its use
for medicinal and recreational purposes. Members of the Trump Administration,
including former Attorney General Jeff Sessions, have made statements indicating
that the Trump Administration intends to take a more aggressive stance on
federal marijuana laws. Any such change in the federal government's enforcement
of current federal laws could adversely affect the ability of the companies in
which the Fund invests to possess or cultivate marijuana, including in
connection with pharmaceutical research, or it could shrink the customer pool
for certain of the Fund's portfolio companies. Any of these outcomes would
negatively affect the profitability and value of the Fund's investments. The
Cannabis Companies and Pharmaceutical Companies may never be able to legally
produce and sell products in the United States or other national or local
jurisdictions.
Marijuana
is a Schedule I controlled substance under the CSA, meaning that it has a high
potential for abuse, has no currently “accepted medical use” in the United
States, lacks accepted safety for use under medical supervision, and may not be
prescribed, marketed or sold in the United States.
Facilities
conducting research, manufacturing, distributing, importing or exporting, or
dispensing controlled substances must be registered (licensed) to perform these
activities and have the security, control, recordkeeping, reporting and
inventory mechanisms required by the DEA to prevent drug loss and diversion.
Failure to obtain the necessary registrations or comply with necessary
regulatory requirements may significantly impair the ability of certain
companies in which the Fund invests to pursue medical marijuana research or to
otherwise cultivate, possess or distribute marijuana.
The
enactment of the Farm Bill immediately, dramatically and favorably changed the
legal landscape in the United States with respect to the manufacturing,
distribution and sale of hemp and hemp derivatives, including CBD. Among
other things, the act: (A) legally distinguishes hemp from marijuana by defining
“hemp” as the Cannabis sativa L. plant
(or any part of the plant) and extracts of it, that contain no more than 0.3%
THC (as calculated on a dry weight basis); (B) exempts “hemp” from the
definition of “marijuana” and, therefore, from both DEA interference and the
restrictions imposed by the CSA, and (C) Expressly permits the interstate sale
and transportation of hemp products. While the enactment of the Farm Bill was
dramatically and materially favorable for the CBD landscape, some legal
considerations remain with respect to CBD products. At present, the
primary risk relates to uncertainty in the FDA actions as it adapts to this new
law.
In
the United States, CBD and products which contain CBD are and will be subject to
the Federal Food, Drug and Cosmetic Act, which includes the DSHEA and
significant federal regulations. Those statutory provisions and regulations
include but are not limited to (i) Good Manufacturing Practices (ii)
legally permitted health-related claims (iii) the requirement for significant
safety dossiers (iv) detailed labeling requirements, (v) requirements for
competent and reliable scientific substantiation for health-related claims and
(vi) compliance with a statute that prohibits the inclusion of an
ingredient in a dietary supplement or food that was first authorized for study
as a drug (“the IND Provision”“ or “the Exclusionary Provision.” The FDA
has publicly taken the present position the CBD cannot be sold in dietary
supplements or foods due to this provision.
Non-U.S. Regulatory Risks of the
Cannabis Industry: The
companies in which the Fund invests are subject to various laws, regulations and
guidelines relating to the manufacture, management, transportation, storage and
disposal of cannabis, as well as being subject to laws and regulations relating
to health and safety, the conduct of operations and the protection of the
environment. Even if a company's operations are permitted under current law,
they may not be permitted in the future, in which case such company may not be
in a position to carry on its operations in its current locations. Additionally,
controlled substance legislation differs between countries and legislation in
certain countries may restrict or limit the ability of certain companies in
which the Fund invests to sell their products.
Operational Risks of the Cannabis
Industry: Companies involved
in the cannabis industry face intense competition, may have limited access to
the services of banks, may have substantial burdens on company resources due to
litigation, complaints or enforcement actions, and are heavily dependent on
receiving necessary permits and authorizations to engage in medical cannabis
research or to otherwise cultivate, possess or distribute cannabis. Since
cultivation, possession, and distribution of cannabis can be illegal under
United States federal law under certain circumstances, federally regulated
banking institutions may be unwilling to make financial services available to
growers and sellers of cannabis.
Concentration Risk:
If the Fund invests more heavily in a particular industry, the value of its
shares may be especially sensitive to factors and economic risks that
specifically affect that industry. As a result, the Fund's share price may
fluctuate more widely than the value of shares of a mutual fund that invests in
a broader range of industries. Additionally, some industries could be subject to
greater government regulation than other industries. Therefore, changes in
regulatory policies for those industries may have a material effect on the value
of securities issued by companies in those industries. The industries in which
the Fund may invest, directly or indirectly, will vary based on the investments
of the Index.
• |
Biotechnology Company Risk: A
biotechnology company’s valuation can often be based largely on the
potential or actual performance of a limited number of products and can
accordingly be greatly affected if one of its products proves, among other
things, unsafe, ineffective or unprofitable. Biotechnology companies are
subject to regulation by, and the restrictions of, the FDA, the U.S.
Environmental Protection Agency, state and local governments, and foreign
regulatory authorities. |
• |
Pharmaceutical Company
Risk: Companies in the pharmaceutical industry can be
significantly affected by, among other things, government approval of
products and services, government regulation and reimbursement rates,
product liability claims, patent expirations and protection and intense
competition. Additionally,
companies in the pharmaceutical industry may be adversely affected by
government regulation and changes in reimbursement rates from such
third-party payors, such as Medicare, Medicaid and other government
sponsored programs, private health insurance plans and health maintenance
organizations. The ability of pharmaceutical companies to commercialize
current and any futures products also depends in part on the extent
reimbursement for the cost of such products and related treatments are
available from these third-party payors. A pharmaceutical company’s
valuation may also be affected if one of its products prove unsafe,
ineffective or unprofitable. The stock prices of companies in this sector
have been and will likely continue to be
volatile. |
COVID-19 Risk. The outbreak
of an infectious respiratory illness caused by a novel coronavirus known as
COVID-19 has resulted in travel restrictions, closed international borders,
enhanced health screenings at ports of entry and elsewhere, disruption of and
delays in healthcare service preparation and delivery, prolonged quarantines,
cancellations, supply chain disruptions, and lower consumer demand, as well as
general concern and uncertainty. The impact of COVID-19, and other infectious
illness outbreaks that may arise in the future, could adversely affect the
economies of many countries or the entire global economy, individual issuers and
capital markets in ways that cannot necessarily be foreseen. In addition, the
impact of infectious illnesses in emerging market countries may be greater due
to generally less established healthcare systems. Public health crises caused by
the COVID-19 outbreak may exacerbate other pre-existing political, social and
economic risks in certain countries or globally. As such, issuers of debt
securities with operations, productions, offices, and/or personnel in (or other
exposure to) areas affected with the virus may experience significant
disruptions to their business and/or holdings. The potential impact on the
credit markets may include market illiquidity, defaults and bankruptcies, among
other consequences, particularly on issuers in the airline, travel and leisure
and retail sectors. The extent to which COVID-19 will affect the Fund, the
Fund’s service providers’ and/or issuer’s operations and results will depend on
future developments, which are highly uncertain and cannot be predicted,
including new information that may emerge concerning the severity of COVID-19
and the actions taken to contain COVID-19. Economies and financial markets
throughout the world are becoming increasingly interconnected. As a result,
whether or not the Fund invests in securities of issuers located in or with
significant exposure to countries experiencing economic, political and/or
financial difficulties, the value and liquidity of the Fund’s investments may be
negatively affected by such events. If there is a significant decline in the
value of the Fund’s portfolio, this may impact the Fund’s asset coverage levels
for certain kinds of derivatives and other portfolio transactions. The duration
of the COVID-19 outbreak and its impact on the global economy cannot be
determined with certainty.
Early Close/Trading Halt
Risk: An exchange or market may close or issue trading halts on specific
securities, or the ability to buy or sell certain securities or financial
instruments may be restricted, which may prevent the Fund from buying or selling
certain securities or financial instruments. In these circumstances, the Fund
may be unable to rebalance its portfolio, may be unable to accurately price its
investments and may incur substantial trading losses.
Equity Securities Risk. Equity securities are subject to changes in
value, and their values may be more volatile than those of other asset classes.
These changes in value may result from factors affecting individual issuers,
industries or the stock market as a whole. In addition, equity markets tend to
be cyclical which may cause stock prices to fall over short or extended periods
of time.
ETF Structure Risks.
The Fund is structured as an ETF and as a result is subject to the special
risks, including:
• |
Not Individually Redeemable.
Shares are not individually redeemable and may be redeemed by the Fund at
NAV only in large blocks known as “Creation Units.” You may incur
brokerage costs purchasing enough Shares to constitute a Creation
Unit. |
• |
Trading Issues. An active trading
market for the Fund's shares may not be developed or maintained. Trading
in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares
inadvisable, such as extraordinary market volatility. There can be
no assurance that Shares will continue to meet the listing requirements of
the Exchange. If the Fund's shares are traded outside a
collateralized settlement system, the number of financial institutions
that can act as authorized participants that can post collateral on an
agency basis is limited, which may limit the market for the Fund's
shares. |
• |
Cash purchases. To the extent Creation
Units are purchased by APs in cash instead of in-kind, the Fund will incur
certain costs such as brokerage expenses and taxable gains and losses.
These costs could be imposed on the Fund and impact the Fund’s NAV if not
fully offset by transaction fees paid by the
APs. |
• |
Market Price Variance Risk. The
market prices of Shares will fluctuate in response to changes in NAV and
supply and demand for Shares and will include a “bid-ask spread” charged
by the exchange specialists, market makers or other participants that
trade the particular security. There may be times when the market
price and the NAV vary significantly. This means that Shares may
trade at a discount to NAV. |
▪ |
In
times of market stress, market makers may step away from their role market
making in shares of ETFs and in executing trades, which can lead to
differences between the market value of Fund shares and the Fund's net
asset value. |
▪ |
To
the extent Authorized Participants exit the business or are unable to
process creations or redemptions and no other Authorized Participant can
step in to do so, there may be a significantly reduced trading market in
the Fund's shares, which can lead to differences between the market value
of Fund shares and the Fund's net asset
value. |
▪ |
The
market price for the Fund's shares may deviate from the Fund's net asset
value, particularly during times of market stress, with the result that
investors may pay significantly more or receive significantly less for
Fund shares than the Fund's net asset value, which is reflected in the bid
and ask price for Fund shares or in the closing
price. |
▪ |
When
all or a portion of an ETFs underlying securities trade in a market that
is closed when the market for the Fund's shares is open, there may be
changes from the last quote of the closed market and the quote from the
Fund's domestic trading day, which could lead to differences between the
market value of the Fund's shares and the Fund's net asset
value. |
▪ |
In
stressed market conditions, the market for the Fund's shares may become
less liquid in response to the deteriorating liquidity of the Fund's
portfolio. This adverse effect on the liquidity of the Fund's shares
may, in turn, lead to differences between the market value of the Fund's
shares and the Fund's net asset value. |
Foreign Securities Investment
Risk. Returns on investment in foreign stocks could be more volatile
than, or trail the returns on, investments in U.S. stocks.
• |
Currency Risk: Indirect and direct
exposure to foreign currencies subjects the Fund to the risk that
currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods
of time for a number of reasons, including changes in interest rates and
the imposition of currency controls or other political developments in the
U.S. or abroad. |
• |
Depositary Receipts Risk: The Fund may
invest in depositary receipts. Investment in ADRs and GDRs may be less
liquid than the underlying shares in their primary trading market and
GDRs, many of which are issued by companies in emerging markets, may be
more volatile and less liquid than depositary receipts issued by companies
in more developed markets. |
• |
Foreign Market and Trading Risk: The
trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign
markets also may have clearance and settlement procedures that make it
difficult for the Fund to buy and sell securities. These factors could
result in a loss to the Fund by causing the Fund to be unable to dispose
of an investment or to miss an attractive investment opportunity, or by
causing Fund assets to be uninvested for some period of
time. |
• |
Foreign Securities Risk: The Fund
invests a significant portion of its assets directly in securities of
issuers based outside of the U.S., or in depositary receipts that
represent such securities. Investment in securities of non-U.S. issuers
involve certain risk that may not be present with investments in
securities of U.S. issuers, such as risk of loss due to foreign currency
fluctuations or to political or economic instability. There may be less
information publicly available about non-U.S. issuers. Non-U.S. issuers
may also be subject to different accounting, auditing, financial
reporting, and investor protection standards than U.S.
issuers. |
• |
Political and Economic Risk: The Fund is
subject to foreign political and economic risk not associated with U.S.
investments, meaning that political events, social and economic events,
and natural disasters occurring in a country where the Fund invests could
cause the Fund's investments in that country to experience gains or
losses. The Fund also could be unable to enforce its ownership rights or
pursue legal remedies in countries where it
invests. |
• |
Privatization Risk: Several foreign
countries in which the Fund invests have begun a process of privatizing
certain entities and industries. Privatized entities may lose money or be
re-nationalized. |
Risks Related to Investing in
Canada. Because the
investments of the Fund are currently geographically concentrated in Canadian
companies or companies that have a significant presence in Canada, investment
results could be dependent on the financial condition of the Canadian economy.
The Canadian economy is reliant on the sale of natural resources and
commodities, which can pose risks such as the fluctuation of prices and the
variability of demand for exportation of such products. Changes in spending on
Canadian products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy. The United
States is Canada's largest trading and investment partner, and the Canadian
economy is significantly affected by developments in the U.S. economy. Since the
implementation of North American Free Trade Agreement in 1994 among Canada, the
United States and Mexico, total two-way merchandise trade between the United
States and Canada has more than doubled. Any downturn in U.S. or Mexican
economic activity is likely to have an adverse impact on the Canadian economy.
The Canadian economy is also dependent upon external trade with other key
trading partners, including China. In addition, Canada is a large supplier of
natural resources (e.g., oil, natural gas and agricultural products). As a
result, the Canadian economy is sensitive to fluctuations in certain commodity
prices.
Market Risk. The values of equity securities in the Index
could decline generally or could underperform other investments.
New Advisor Risk. The
Advisor has only recently begun serving as an investment advisor to ETFs. As a
result, investors do not have a long-term track record of managing an ETF from
which to judge the Advisor, and the Advisor may not achieve the intended result
in managing the Fund.
New Fund Risk. The Fund no history of operations.
Accordingly, investors in the Fund bear the risk that the Fund may not be
successful in implementing its investment strategy, may not employ a successful
investment strategy, or may fail to attract sufficient assets under management
to realize economies of scale, any of which could result in the Fund being
liquidated at any time without shareholder approval and at a time that may not
be favorable for all shareholders. Such a liquidation could have negative tax
consequences for shareholders and will cause shareholders to incur expenses of
liquidation.
Non-Diversification Risk.
The Fund is non-diversified. This means that it may invest a larger
portion of its assets in a limited number of companies than a diversified fund.
Because a relatively high percentage of the Fund’s assets may be invested in the
securities of a limited number of companies that could be in the same or related
economic sectors, the Fund’s portfolio may be more susceptible to any single
economic, technological or regulatory occurrence than the portfolio of a
diversified fund.
Passive Investment Risk.
The Fund is not actively managed and therefore would not sell an equity security
due to current or projected underperformance of such security, industry or
sector, unless that security is removed from the Index.
Sampling Risk. The Fund's
use of a representative sampling approach, if used, could result in its holding
a smaller number of securities than are in the Index. As a result, an
adverse development with an issuer of securities held by the Fund could result
in a greater decline in NAV than would be the case if the Fund held all of the
securities in the Index. To the extent the assets in the Fund are smaller,
these risks will be greater.
Securities Lending Risk.
When the Fund loans its portfolio securities, it will receive collateral
consisting of cash or cash equivalents, or securities issued or guaranteed by
the U.S. Government or one of its agencies or instrumentalities, or any
combination thereof. Nevertheless, the Fund risks a delay in the recovery of the
loaned securities, or even the loss of rights in the collateral deposited by the
borrower if the borrower should fail financially. In addition, if the Fund’s
securities are sold while out on loan and the securities are not returned timely
by the borrower, there is a possibility that the sale transaction will not
settle in the usual manner and cause unintended market exposure and additional
trade and other expenses to the Fund. As well, any investments made with the
collateral received are subject to the risks associated with such investments.
If such investments lose value, the Fund will have to cover the loss when
repaying the collateral.
Small and Mid-Cap Securities Risk.
The stocks of small and medium capitalization companies involve
substantial risk. These companies may have limited product lines, markets
or financial resources, and they may be dependent on a limited management
group. Stocks of these companies may be subject to more abrupt or erratic
market movements than those of larger, more established companies or the market
averages in general.
Tracking Error Risk. The Fund's return may not match or achieve a
high degree of correlation with the return of the Index. To the extent the Fund
utilizes a sampling approach, it may experience tracking error to a greater
extent than if the Fund sought to replicate the Index.
Valuation Risk. The sales
price that the Fund could receive for a security may differ from the Fund's
valuation of the security and may differ from the value used by Index,
particularly for securities that trade in low volume or volatile markets or that
are valued using a fair value methodology. In addition, the value of the
securities in the Fund's portfolio may change on days when shareholders will not
be able to purchase or sell the Fund's shares.
Volatility Risk. The Fund
may have investments that appreciate or decrease significantly in value of short
periods of time. This may cause the Fund’s net asset value per share to
experience significant increases or declines in value over short periods of
time, however, all investments long- or short-term are subject to risk of
loss.
OBP
Capital, LLC (“OBP” or the “Advisor”), acts as the Fund's investment advisor
pursuant to an advisory agreement with the Spinnaker ETF Series (the “Trust”) on
behalf of the Fund (the “Advisory Agreement”). As investment advisor, OBP has
overall responsibility for the general management and administration of the
Fund. The Advisor, located at 116 S. Franklin Street, Rocky Mount, North
Carolina 27802, is registered with the Securities and Exchange Commission as an
investment advisor. Pursuant to the Advisory Agreement, the Advisor manages the
investment and reinvestment of the Fund's assets and administers the affairs of
the Fund to the extent requested by the Board of Trustees.
Pursuant
to the Advisory Agreement, the Fund pays the Advisor a unitary management fee
equal to 0.95% of its average daily net assets. The Advisor’s unitary management
fee is designed to pay the Fund’s expenses and to compensate the Advisor for
providing service for the Fund. Out of the unitary management fee, the Advisor
pays substantially all expenses of the Fund, including the costs of transfer
agency, custody, fund administration, legal, audit, and other services, and
Independent Trustees’ fees, but excluding (i) any front-end or contingent
deferred loads; (ii) brokerage fees and commissions, (iii) acquired fund fees
and expenses; (iv) fees and expenses associated with investments in other
collective investment vehicles or derivative instruments (including for example
option and swap fees and expenses); (v) borrowing costs (such as interest and
dividend expense on securities sold short); (vi) taxes; and (vii) extraordinary
expenses, such as litigation expenses (which may include indemnification of Fund
officers and Trustees and contractual indemnification of Fund service providers
(other than the advisor or sub-advisor). The Advisor, and not Fund shareholders,
would benefit from any reduction in fees paid for third-party services,
including reductions based on increases in assets.
Advisor Compensation. The Advisor has entered
into fee waiver agreement with the Fund under which it has agreed to waive or
reduce its unitary fee by 0.20% of the average daily net assets of the Fund
through June 30, 2023, and may be terminated by the Board of Trustees at any
time. The Advisor cannot recoup from the Fund any amounts paid by the Advisor
under the fee waiver agreement.
The
unitary fee paid by the Fund to the Advisor during the fiscal year ended
February 28, 2022, as a percentage of the Fund’s average daily net assets, was
1.18% (after waiver).
Merlin
Capital, LLC, d/b/a Merlin Asset Management (“Merlin” or a “Sub-Advisor”), acts
as the Sub-Advisor for the Fund pursuant to a sub-advisory agreement with the
Trust and OBP (the “Sub-Advisory Agreement”). Merlin manages the investment of
the Fund's assets, subject to the oversight and supervision of OBP.
Merlin
is located at One Boston Place, Suite 2600, Boston, Massachusetts 02108. As of
February 28, 2022, Merlin and its affiliates provided investment advisory
services for assets in excess of $92.70 million.
Sub-Advisor Compensation. Pursuant the
Sub-Advisory Agreement, the Adviser pays the Sub-Advisor out of the Adviser's
advisory fee a sub-advisory fee of 0.03% of the Fund's average net assets in
aggregate fees for the services it provides.
For
the fiscal year ended February 28, 2022, the Sub-Advisor earned fees equal to
0.03%, none of which were waived or reimbursed by the Sub-Advisor.
Approval
of Advisory Agreement and Sub-Advisory Agreement. Discussion
regarding the basis for the Board of Trustees’ approval of the Advisory
Agreement and Sub-Advisory Agreements are available in the Fund’s semi-annual
report to shareholders for the period ended August 31, 2021.
Portfolio
Management. Michael Obuchowski, Ph.D., has been the founder and managing
member of Merlin Capital, LLC d/b/a Merlin Asset Management since August 2016
and is primarily responsible for the day-to-day operation of the Fund.
From
2017 through 2018, Dr. Obuchowski was the portfolio manager for the Fieldstone
Merlin Dynamic Large Cap Growth ETF, a former series of the Trust.
From
2014 through 2016, Dr. Obuchowski was a portfolio manager for CONCERT Capital
Management and a member of its investment committee, contributing to the
oversight of CONCERT's model portfolio allocations.
Dr.
Obuchowski earned his Ph.D. in Clinical Psychology from the New School for
Social Research in New York.
The
Statement of Additional Information provides additional information about the
Portfolio Manager's compensation, other accounts managed and ownership of Fund
shares.
The
Fund is based upon the Innovation Labs Cannabis Index. The Index is developed by
Innovation Labs Ltd. and licensed to Innovation Shares LLC, the Fund’s Index
Provider. The Index is calculated, maintained, and distributed by an independent
third-party index calculation agent that is not affiliated with the Fund, the
Advisor, or Sub-Advisor. The Advisor has entered into a license agreement with
the Index Provider. The Fund is entitled to use the Index pursuant to a
sub-licensing agreement with the Advisor.
No
entity that creates, compiles, sponsors or maintains the Index is or will be an
affiliated person, as defined in Section 2(a)(3) of the 1940 Act, or an
affiliated person of an affiliated person, of the Trust, the Advisor, the
Sub-Advisor, or the Distributor of the Fund.
Neither
the Advisor or the Sub-Advisor, nor any affiliate of the Advisor or Sub-Advisor
has any right to influence the selection of the securities in the Index.
Disclaimer
The
Innovation Labs Cannabis Index is the exclusive property of Innovation Labs
Ltd. The Innovation Labs Ltd. index names are service mark(s) of
Innovation Labs Ltd. or its affiliates and have been licensed for use for
certain purposes by the Advisor, which has sub-licensed them to the Fund.
The financial securities referred to herein are not sponsored, endorsed, or
promoted by Innovation Labs Ltd., and Innovation Labs Ltd. bears no liability
with respect to any such financial securities. No purchaser, seller or
holder of this product, or any other person or entity, should use or refer to
any Innovation Labs Ltd. trade name, trademark or service mark to sponsor,
endorse, market or promote this product without first contacting Innovation Labs
Ltd. to determine whether Innovation Labs Ltd.’s permission is required.
Under no circumstances may any person or entity claim any affiliation with
Innovation Labs Ltd. without the prior written permission of Innovation Labs
Ltd.
Shares
of the Fund may be acquired or redeemed directly from the Fund at NAV only in
Creation Units or multiples thereof, as discussed in the “How to Buy and Sell
Shares” section of this prospectus. Only an Authorized Participant may engage in
creation or redemption transactions directly with the Fund. Once created, shares
of the Fund generally trade in the secondary market in amounts less than a
Creation Unit. Individual Fund shares may only be bought and sold in the
secondary market through a broker or dealer at market price.
Shares
of the Fund are listed for trading in the secondary market on the
Exchange. Shares can be bought and sold throughout the trading day
like other publicly traded shares. When buying or selling Shares through a
broker, you will incur customary brokerage commissions and other charges. In
addition, you may incur the costs attributable to the difference between the
highest price a buyer is willing to pay to purchase shares of the Fund (bid) and
the lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread’). Because
the Shares trade at market prices rather than net asset value, the price you pay
or receive for the Shares may be greater than NAV (premium) or less than NAV
(discount) of such shares. The Fund trades under the Exchange ticker symbol
THCX. You can access recent information, including information on the Fund’s
NAV, market price, premiums and discounts, and bid-ask spreads, on the Fund’s
website at https://thcxetf.com/fund/thcx-performance. The median bid-ask spread
for the fiscal year ended February 28, 2022, was 0.69.
Book Entry. Shares are held in book-entry form,
which means that no stock certificates are issued. The Depository Trust Company
(“DTC”) or its nominee is the record owner of, and holds legal title to, all
outstanding Shares of the Fund and is recognized as the owner of all outstanding
Shares of the Fund.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of stock certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that you hold in
book- entry or “street name” form.
Pricing Fund Shares. The trading price of the
Fund's Shares on the Exchange is based on the market price, not the Fund’s NAV,
so it may differ from the Fund's daily NAV and can be affected by market forces
of supply and demand, economic conditions, and other factors. Information
regarding the number of days the market price of the Fund’s Shares was greater
than the Fund’s NAV and the number of days it was less than the Fund’s NAV
(i.e., premium or discount) for the most recently completed calendar year, and
the most recently completed calendar quarter is available on the Fund’s website
at https://thcxetf.com/fund/thcx-performance.
Determination of Net Asset Value. The NAV per
share for the Fund is determined once daily as of the close of on the New York
Stock Exchange (“NYSE”), usually 4:00 p.m. Eastern time, each day the NYSE is
open for trading, based on prices at the time of closing provided that (a) any
Fund assets or liabilities denominated in currencies other than the U.S. dollar
are translated into U.S. dollars at the prevailing market rates on the date of
valuation as quoted by one or more major banks or dealers that makes a two-way
market in such currencies (or a data service provider based on quotations
received from such banks or dealers); and (b) U.S. fixed income assets may be
valued as of the announced closing time for trading in fixed income instruments
in a particular market or exchange. The NAV of the Fund is calculated by
dividing the value of the net assets of the Fund (i.e., the value of the Fund’s
total assets minus its total liabilities) by the total number of outstanding
shares of the Fund.
Fixed
income securities are valued at market value. Market value generally means a
valuation (i) obtained from an exchange, a pricing service or a major market
maker (or dealer), (ii) based on a price quotation or other equivalent
indication of value supplied by an exchange, a pricing service or a major market
maker (or dealer), or (iii) based on amortized cost. The Fund's debt securities
are thus valued by reference to a combination of transactions and quotations for
the same or other securities believed to be comparable in quality, coupon,
maturity, type of issue, call provisions, trading characteristics and other
features deemed to be relevant. To the extent the Fund's debt securities
are valued based on price quotations or other equivalent indications of value
provided by a third-party pricing service, any such third-party pricing service
may use a variety of methodologies to value some or all of the Fund's debt
securities to determine the market price. For example, the prices of
securities with characteristics like those held by the Fund may be used to
assist with the pricing process. In addition, the pricing service may use
proprietary pricing models. Equity securities are valued at the last
reported sale price on the principal exchange on which such securities are
traded, as of the close of regular trading on NYSE on the day the securities are
being valued or, if there are no sales, at the mean of the most recent bid and
asked prices. Equity securities that are traded in over-the-counter
markets are valued at the NASDAQ Official Closing Price as of the close of
regular trading on NYSE on the day the securities are valued or, if there are no
sales, at the mean of the most recent bid and asked prices.
Securities
will be valued at fair value when market quotations (or other market valuations
such as those obtained from a pricing service) are not readily available or are
deemed unreliable. Fair value determinations are made in accordance with the
policies and procedures approved by the Board. Market quotations may not be
readily available or may be determined to be unreliable when a security’s value
or a meaningful portion of the Fund's portfolio is believed to have been
materially affected by a significant event. A significant event is an
event that is likely to materially affect the value of the Fund’s investments.
Such events may include a natural disaster, an economic event like a bankruptcy
filing, a trading halt in a security, an unscheduled early market close or a
substantial fluctuation in domestic and foreign markets that has occurred
between the close of the principal exchange and NYSE. In such a case, the
value for a security is likely to be different from the last quoted market
price. In addition, due to the subjective and variable nature of fair
market value pricing, it is possible that the value determined for a particular
asset may be materially different from the value realized upon such asset's
sale.
Trading
in securities on many foreign securities exchanges and over-the-counter markets
is normally completed before the close of business on the NYSE. In addition,
securities trading in a particular country or countries may not take place on
all U.S. business days or may take place on days that are not U.S. business
days. Changes in valuations of certain securities may occur at times or on days
on which the Fund's NAV is not calculated and on which the Fund does not effect
sales or redemptions of its Shares.
Creation Units. Investors such as market
makers, large investors, and institutions who wish to deal in Creation Units
(large specified blocks of 25,000 Shares or multiples thereof) directly with the
Fund must have entered into an authorized participant agreement with the Capital
Investment Group, Inc. (“Distributor”), and be accepted by the transfer agent,
or purchase through a dealer that has entered into such an agreement. Set forth
below is a brief description of the procedures applicable to purchase and
redemption of Creation Units. For more detailed information, see “Creation and
Redemption of Creation Unit Aggregations” in the Statement of Additional
Information.
How to Buy Creation Units. In order to purchase
Creation Units of the Fund, an investor must generally deposit a designated
portfolio of securities (the “Deposit Securities”) (and/or an amount in cash in
lieu of some or all of the Deposit Securities) and generally make a cash payment
referred to as the “Cash Component.” For those APs that are not eligible for
trading a Deposit Security, and in such other circumstances as the Advisor or
Sub-Advisor believes are in the best interests of the Fund, custom orders are
available. The list of the names and the amounts of the Deposit Securities is
made available by the Fund's custodian through the facilities of the National
Securities Clearing Corporation (“NSCC”) immediately prior to the opening of
business each day of the Exchange. The Cash Component represents the
difference between the NAV of a Creation Unit and the market value of the
Deposit Securities. In the case of custom orders, cash- in-lieu may be added to
the Cash Component to replace any Deposit Securities that either the AP may not
be eligible to trade or the Advisor or Sub-Advisor believes are in the best
interests of the Fund not to accept in-kind.
Orders
must be placed in proper form by or through an AP that is a participant of the
DTC (“DTC Participant”). All standard orders must be placed for one or more
whole Creation Units of Shares of the Fund and must be received by the
Distributor in proper form no later than the close of regular trading on the
NYSE (ordinarily 4:00 p.m. Eastern time) (“Closing Time”) in order to receive
that day's closing NAV per Share. In the case of custom orders, the order must
be received by the Distributor no later than one hour prior to Closing Time in
order to receive that day's closing NAV per Share. A custom order may be placed
by an AP in the event that the Trust permits or requires the substitution of an
amount of cash to be added to the Cash Component to replace any Deposit Security
which may not be available in sufficient quantity for delivery or which may not
be eligible for trading by such AP or the investor for which it is acting or any
other relevant reason. A fixed creation transaction fee of $500 per transaction
(the “Creation Transaction Fee”) is applicable to each transaction regardless of
the number of Creation Units purchased in the transaction. An additional
variable charge for cash creations or partial cash creations may also be imposed
to compensate the Fund for the costs associated with buying the applicable
securities. The Fund may adjust these fees from time to time based on actual
experience. The price for each Creation Unit will equal the Fund’s daily NAV per
Share times the number of Shares in a Creation Unit plus the fees described
above and, if applicable, any transfer taxes.
Shares
of the Fund may be issued in advance of receipt of all Deposit Securities
subject to various conditions, including a requirement to maintain cash at least
equal to at least 105% and up to 115% of the market value of the missing Deposit
Securities on deposit with the Trust.
For
more detailed information, see “Creation and Redemption of Creation Unit
Aggregations” in the Statement of Additional Information.
Legal Restrictions on Transactions in Certain
Securities. An investor subject to a legal restriction with respect to a
particular security required to be deposited in connection with the purchase of
a Creation Unit may, at the Fund's discretion, be permitted to deposit an
equivalent amount of cash in substitution for any security which would otherwise
be included in the Deposit Securities applicable to the purchase of a Creation
Unit. For more detailed information, see “Creation and Redemption of Creation
Unit Aggregations” in the Statement of Additional Information.
Redemption of Creation Units. Shares may be
redeemed only in Creation Units at their NAV and only on a day the Exchange is
open for business. The Fund's custodian makes available immediately prior to the
opening of business each day of the Exchange through the facilities of the NSCC,
the list of the names and the amounts of the Fund's portfolio securities that
will be applicable that day to redemption requests in proper form (“Redemption
Securities”). Redemption Securities received on redemption may not be identical
to Deposit Securities, which are applicable to purchases of Creation Units.
Unless cash redemptions or partial cash redemptions are available or specified
for the Fund as set forth below, the redemption proceeds consist of the
Redemption Securities, plus cash in an amount equal to the difference between
the NAV of Shares being redeemed as next determined after receipt by the
transfer agent of a redemption request in proper form, and the value of the
Redemption Securities (the “Cash Redemption Amount”), less the applicable
redemption fee and, if applicable, any transfer taxes. Should the Redemption
Securities have a value greater than the NAV of Shares being redeemed, a
compensating cash payment to the Fund equal to the differential, plus the
applicable redemption fee and, if applicable, any transfer taxes will be
required to be arranged for, by or on behalf of the redeeming shareholder.
An
order to redeem Creation Units of the Fund may only be effected by or through an
Authorized Participant. An order to redeem must be placed for one or more whole
Creation Units and must be received by the transfer agent in proper form no
later than the close of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) in order to receive that day's closing NAV per Share. In the case of
custom orders, as further described in the Statement of Additional Information,
the order must be received by the transfer agent no later than 3:00 p.m. Eastern
time.
For
more detailed information, see “Creation and Redemption of Creation Unit
Aggregations” in the Statement of Additional Information.
Distributions. Fund shareholders are entitled
to their share of the Fund's income and net realized gains on its investments.
The Fund pays out substantially all of its net earnings to its shareholders as
“distributions.” Income dividends, if any, are distributed to shareholders
quarterly. Net capital gains are distributed annually. Dividends may be declared
and paid more frequently to comply with the distribution requirements of the
Internal Revenue Code of 1986, as amended (the “Code”). Some portion of each
distribution may result in a return of capital (which is a return of the
shareholder's investment in the Fund). Fund shareholders will be notified
regarding the portion of the distribution that represents a return of
capital.
Distributions
in cash may be reinvested automatically in additional whole Shares only if the
broker through which the Shares were purchased makes such option
available.
Fund
Shares can only be purchased and redeemed directly from the Fund in Creation
Units by APs and that the vast majority of trading in the Fund's Shares occurs
on the secondary market. Because the secondary market trades do not directly
involve the Fund, it is unlikely those trades would cause the harmful effects of
market timing, including dilution, disruption of portfolio management, increases
in the Fund's trading costs, and the realization of capital gains. With regard
to the purchase or redemption of Creation Units directly with the Fund, to the
extent effected in-kind (i.e., for securities), those trades do not cause the
harmful effects that may result from frequent cash trades. To the extent trades
are effected in whole or in part in cash, those trades could result in dilution
to the Fund and increased transaction costs, which could negatively impact the
Fund's ability to achieve its investment objective. However, direct trading by
APs is critical to ensuring that the Fund's Shares trade at or close to NAV. The
Fund also employs fair valuation pricing to minimize potential dilutions from
market timing. In addition, the Fund imposes fixed and variable transaction fees
on purchases and redemptions of Fund Shares to cover the custodial and other
costs incurred by the Fund in effecting trades. These fees increase if an
investor substitutes cash in part or in whole for securities, reflecting the
fact that a Fund’s trading costs increase in those circumstances. Given this
structure, the Trust has determined that it is not necessary to adopt policies
and procedures to detect and deter market timing of the Fund’s Shares.
To
keep you informed about your investments, the Fund will send you various account
statements and reports, including:
• |
Confirmation
statements that verify your buy or sell transactions (except in the case
of automatic purchases or redemptions from bank accounts. Please review
your confirmation statements for accuracy. |
• |
Quarter-end
and year-end shareholder account
statements. |
• |
Reports
for the Funds, which includes portfolio manager commentary,
performance, |
With
e-Delivery, you can receive your tax forms, account statements, Fund reports,
and prospectuses online rather than by regular mail. Taking advantage of this
free service not only decreases the clutter in your mailbox, it also reduces
your Fund fees by lowering printing and postage costs. To receive materials
electronically, contact your financial intermediary (such as a broker-dealer or
bank).
Administrator and Fund
Accountant. The Nottingham Company
(“Administrator”), 116 South Franklin Street, Post Office Box 69, Rocky Mount,
North Carolina 27802-0069 serves as the administrator and fund accountant for
the Fund.
Custodian. Cowen Execution Services, LLC, located at 599
Lexington Avenue, 21st
Floor, New York, New York 10022, serves as the custodian of the Fund.
Transfer Agent. Nottingham Shareholder Services, LLC, located
at 116 South Franklin Street, Post Office Box 69, Rocky Mount, North Carolina
27802-0069, serves as the transfer agent of the Fund.
Counsel. Greenberg Traurig LLP is counsel to the
Trust.
Independent Registered Public
Accounting Firm. BBD, LLP, located
at 1835 Market Street, 3rd
Floor, Philadelphia, PA 19103, serves as the Fund’s independent registered
public accounting firm. They audit the Fund's financial statements and perform
other related audit services.
As
with any investment, you should consider how your investment in Shares will be
taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in Shares.
Unless
your investment in the Shares is made through a tax-exempt entity or
tax-deferred retirement account, such as an IRA plan, you need to be aware of
the possible tax consequences when:
• |
The
Fund makes a distribution; |
• |
You
sell your Shares listed on the Exchange;
and |
• |
You
purchase or redeem Creation Units |
Distributions
from the Fund's net investment income (other than qualified dividend income),
including distributions of income from securities lending and distributions out
of the Fund's net short-term capital gains, if any, are taxable to you as
ordinary income. Distributions by the Fund of net long-term capital gains in
excess of net short-term capital losses (capital gain dividends) are taxable to
you as long-term capital gains, regardless of how long you have held the Fund's
shares. Distributions by the Fund that qualify as qualified dividend income are
taxable to you at long-term capital gain rates. Long-term capital gains and
qualified dividend income are generally eligible for taxation at a maximum rate
of 15% for non-corporate shareholders with incomes below approximately $400,000
($450,000 if married and filing jointly), amounts adjusted annually for
inflation, and 20% for individuals with any income above these amounts that is
net long-term capital gain or qualified dividend income. In addition, a 3.8%
U.S. federal Medicare contribution tax is imposed on “net investment income,”
including, but not limited to, interest, dividends, and net gain, of U.S.
individuals with income exceeding $200,000 (or $250,000 if married and filing
jointly) and of estates and trusts.
Dividends
will be qualified dividend income to you if they are attributable to qualified
dividend income received by the Fund. Generally, qualified dividend income
includes dividend income from taxable U.S. corporations, provided that the Fund
satisfies certain holding period requirements in respect of the stock of such
corporations and has not hedged its position in the stock in certain ways.
Substitute dividends received by the Fund with respect to dividends paid on
securities lent out will not be qualified dividend income. For this purpose, a
qualified non-U.S. corporation means any non-U.S. corporation that is eligible
for benefits under a comprehensive income tax treaty with the United States,
which includes an exchange of information program or if the stock with respect
to which the dividend was paid is readily tradable on an established United
States securities market. The term excludes a corporation that is a passive
foreign investment company.
Dividends
received by the Fund from a real estate investment trust (“REIT”) or another RIC
generally are qualified dividend income only to the extent the dividend
distributions are made out of qualified dividend income received by such REIT or
RIC. It is expected that dividends received by the Fund from a REIT and
distributed to a shareholder generally will be taxable to the shareholder as
ordinary income.
For
a dividend to be treated as qualified dividend income, the dividend must be
received with respect to a share of stock held without being hedged by the Fund,
and with respect to a share of the Fund held without being hedged by you, for 61
days during the 121-day period beginning at the date which is 60 days before the
date on which such share becomes ex-dividend with respect to such dividend or,
in the case of certain preferred stock, 91 days during the 181-day period
beginning 90 days before such date.
If
your Fund shares are loaned out pursuant to a securities lending arrangement,
you may lose the ability to treat Fund dividends paid while the shares are held
by the borrower as qualified dividend income. In addition, you may lose the
ability to use foreign tax credits passed through by the Fund if your Fund
shares are loaned out pursuant to a securities lending agreement.
In
general, your distributions are subject to U.S. federal income tax for the year
when they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year.
If
the Fund's distributions exceed current and accumulated earnings and profits,
all or a portion of the distributions made in the taxable year may be
recharacterized as a return of capital to shareholders. Distributions in excess
of the Fund's minimum distribution requirements, but not in excess of the Fund's
earnings and profits, will be taxable to shareholders and will not constitute
nontaxable returns of capital. A return of capital distribution generally will
not be taxable but will reduce the shareholder's cost basis and result in a
higher capital gain or lower capital loss when those shares on which the
distribution was received are sold. Once a shareholder's cost basis is reduced
to zero, further distributions will be treated as capital gain, if the
shareholder holds shares of the Fund as capital assets.
If
you are neither a resident nor a citizen of the United States or if you are a
non-U.S. entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies, provided that
withholding tax will generally not apply to any gain or income realized by a
non-U.S. shareholder in respect of any distributions of long-term capital gains
or upon the sale or other disposition of shares of the Fund.
A
30% withholding tax is currently imposed on U.S.-source dividends, interest, and
other income items, and will be imposed on proceeds from the sale of property
producing U.S.-source dividends and interest paid after December 31, 2018, to
(i) foreign financial institutions including non-U.S. investment funds unless
they agree to collect and disclose to the Internal Revenue Service (“IRS”)
information regarding their direct and indirect U.S. account holders and (ii)
certain other foreign entities, unless they certify certain information
regarding their direct and indirect U.S. owners. To avoid withholding, foreign
financial institutions will need to (i) enter into agreements with the IRS that
state that they will provide the IRS information, including the names,
addresses, and taxpayer identification numbers of direct and indirect U.S.
account holders, comply with due diligence procedures with respect to the
identification of U.S. accounts, report to the IRS certain information with
respect to U.S. accounts maintained, agree to withhold tax on certain payments
made to non-compliant foreign financial institutions or to account holders who
fail to provide the required information, and determine certain other
information as to their account holders, or (ii) in the event that an applicable
intergovernmental agreement and implementing legislation are adopted, provide
local revenue authorities with similar account holder information. Other foreign
entities will need to provide the name, address, and taxpayer identification
number of each substantial U.S. owner or certifications of no substantial U.S.
ownership unless certain exceptions apply or agree to provide certain
information to other revenue authorities for transmittal to the IRS.
Dividends,
interest, and capital gains earned by the Fund with respect to non-U.S.
securities may give rise to withholding, capital gains and other taxes imposed
by non-U.S. countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. If more than 50% of the total assets
of the Fund at the close of a year consists of non-U.S. stocks or securities
(generally, for this purpose, depositary receipts, no matter where traded, of
non-U.S. companies are treated as “non-U.S.”), the Fund may “pass through” to
you certain non-U.S. income taxes (including withholding taxes) paid by the
Fund. This means that you would be considered to have received as an additional
dividend your share of such non-U.S. taxes, but you may be entitled to either a
corresponding tax deduction in calculating your taxable income, or, subject to
certain limitations, a credit in calculating your U.S. federal income tax.
For
purposes of foreign tax credits for U.S. shareholders of the Fund, foreign
capital gains taxes may not produce associated foreign source income, thereby
limiting a U.S. person's ability to use such credits.
If
you are a resident or a citizen of the United States, by law, back-up
withholding at a 28% rate will apply to your distributions and proceeds if you
have not provided a taxpayer identification number or social security number and
made other required certifications.
Currently,
any capital gain or loss realized upon a sale of Shares is generally treated as
long-term capital gain or loss if the Shares have been held for more than one
year and as short-term capital gain or loss if the Shares have been held for one
year or less. The ability to deduct capital losses may be limited.
An
Authorized Participant who exchanges equity securities for Creation Units
generally will recognize a gain or a loss. The gain or loss will be equal to the
difference between the market value of the Creation Units at the time of the
exchange and the exchanger's aggregate basis in the securities surrendered and
the Cash Component paid. A person who exchanges Creation Units for equity
securities will generally recognize a gain or loss equal to the difference
between the exchanger's basis in the Creation Units and the aggregate market
value of the securities received and the Cash Redemption Amount. The Internal
Revenue Service, however, may assert that a loss realized upon an exchange of
securities for Creation Units cannot be deducted currently under the rules
governing “wash sales,” or on the basis that there has been no significant
change in economic position. Persons exchanging securities should consult their
own tax advisor with respect to whether the wash sale rules apply and when a
loss might be deductible.
Under
current federal tax laws, any capital gain or loss realized upon redemption of
Creation Units is generally treated as long-term capital gain or loss if the
Shares have been held for more than one year and as a short-term capital gain or
loss if the Shares have been held for one year or less.
If
you purchase or redeem Creation Units, you will be sent a confirmation statement
showing how many and at what price you purchased or sold Shares.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You may also be subject to state and local taxation on Fund
distributions, and sales of Fund Shares. Consult your personal tax advisor about
the potential tax consequences of an investment in Fund Shares under all
applicable tax laws.
For
purposes of the 1940 Act, the Fund is treated as a registered investment
company. Section 12(d)(1) of the 1940 Act restricts investments by investment
companies in the securities of other investment companies, including Shares of
the Fund. The SEC has issued an exemptive order to the Trust permitting
registered investment companies to invest in the exchange-traded funds offered
by the Trust beyond the limits of Section 12(d)(1) subject to certain terms and
conditions set forth in an SEC exemptive order issued to the Trust, including
that such registered investment companies enter into an agreement with the
Trust.
Portfolio Holdings Information. A description
of the Fund's policies and procedures with respect to the disclosure of its
portfolio securities is available in the Fund's Statement of Additional
Information (“SAI”). On each business day, before commencement of trading on
Exchange, the Fund will disclose the identities and quantities of its portfolio
holdings that will form the basis for the Fund's calculation of NAV at the end
of the business day. These disclosures can be found at:
https://thcxetf.com/fund/thcx-holdings/
Fund
fact sheets provide information regarding the Fund's top holdings and may be
requested by calling 1-800-773-3863.
Premium/Discount Information. Information
regarding how often the Shares of the Fund traded on the Exchange at a price
above (i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund
during the prior calendar year and subsequent quarters, when available, will be
available at:
https://thcxetf.com/fund/thcx-performance/
The
Financial Highlights table is intended to help you understand the financial
performance of the Fund since inception. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in the Fund
(assuming reinvestment of all dividends and distributions). The financial data
in the table has been audited by BBD, LLP, an independent registered public
accounting firm, whose report, along with the Fund’s financial statements, is
incorporated by reference into the Statement of Additional Information and are
included in the annual report which are available upon request. Further
information about the performance of the Fund is contained in the Annual Report
of the Fund, copies of which may also be obtained at no charge by calling the
Fund at 1-800-773-3863.
The Cannabis ETF
(For a
Share Outstanding Throughout Each Period)
|
February
28,
2022 |
February 28, 2021 |
February
29,
2020 (f) |
Net
Asset Value, Beginning of Period |
$19.79 |
$9.98 |
$25.00 |
Gain
(Loss) from Investment Operations:
Net
investment income (loss)
Net
realized and unrealized gain (loss) on investments and foreign
currency
Total
from Investment Operations |
(0.04)
(12.56) (12.60) |
0.33
9.93 10.26
|
0.54
(15.14) (14.60)
|
Less
Distributions From:
Net
investment income
Total
Distributions |
(0.00)(g) (0.00)(g)
|
(0.45) (0.45)
|
(0.42) (0.42)
|
Net
Asset Value, End of Period |
$7.19 |
$19.79 |
$9.98 |
Total
Return |
(63.66)% |
107.46% |
(58.66)%(b)(d) |
Net
Assets, End of Period (in thousands) |
$58,624 |
$175,125 |
$18,959 |
Ratios
of:
Gross
expenses to average net assets (c)
Net
expenses to average net assets (c)
Net
investment income (loss) to average net assets |
0.95% 0.73% (0.25)%
|
0.94% 0.69% 2.17%
|
0.95%
(a) 0.70% (a) 6.91% (a)
|
Portfolio
turnover rate (e) |
54.09% |
75.46% |
48.73%
(b) |
(a)
Annualized.
(b)
Not annualized.
(c)
The expense ratios listed reflect total expenses prior to any waivers (gross
expense ratio) and after any waivers (net expense ratio).
(d)
Includes adjustments in accordance with accounting principles generally accepted
in the United States of America and, consequently, the net asset value for
financial reporting purposes and the returns based upon those net asset values
may differ from the net asset values and returns for shareholder
transactions.
(e)
Portfolio turnover rate excludes portfolio securities received or delivered as a
result of processing capital share transactions in Creation Units.
(f)
For a share outstanding during the period from July 8, 2019 (Commencement of
Operations) through February 29, 2020.
(g)
Less than $0.01 per share.
THE
CANNABIS ETF
(Ticker:
THCX)
For
more information visit thcxetf.com or call 1-800-773-3863
Copies
of the Prospectus, SAI, and recent shareholder reports can be found on our
website at thcxetf.com. For more information about the Fund, you may request a
copy of the SAI. The SAI provides detailed information about the Fund and is
incorporated by reference into this Prospectus. This means that the SAI, for
legal purposes, is a part of this Prospectus. Additional information about the
Fund's investments is available in the annual and semi-annual reports to
shareholders. The annual reports include a discussion of market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
If
you have any questions about the Fund or shares of the Fund or you wish to
obtain the SAI or Annual Report free of charge, please:
|
Call: |
1-800-773-3863
(toll free)
Monday
through Friday, 8:30 a.m. to 5:00 p.m. (Eastern time)
|
|
Email: |
|
|
Write: |
The Cannabis ETF 116 South Franklin
Street Post Office Box 4365 Rocky Mount, North Carolina
27803-0365 |
Reports
and other information about the Fund are available on the EDGAR database on the
SEC's website at www.sec.gov, and copies of this information may be obtained,
after paying a duplicating fee, by electronic request at the following e-mail
address:
[email protected].
No
person is authorized to give any information or to make any representations
about the Fund and its shares not contained in this Prospectus and you should
not rely on any other information. Read and keep this Prospectus for future
reference.
Investment
Company Act File No.: 811-22398