Even though this has been a bad year for most stocks, state-licensed cannabis vendors have been hit especially hard.
The AdvisorShares Pure US Cannabis exchange-traded fund, which monitors America’s multistate operators, or MSOs, plunged by 25% in the past month, while the S&P 500 fell by 7%.
In a note dated July 5 from Cantor Fitzgerald, analyst Pablo Zuanic stated, “The group does not seem to find a bottom.” He mentions several factors that are depressing, including the recurrent failure of federal cannabis legalization proposals in Congress, challenging year-over-year comparisons with 2021 stimulus funding, and declining wholesale cannabis pricing.
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Investors in these over-the-counter traded shares don’t seem to be affected by the fact that recreational sales just started in New Jersey and New Mexico and will soon start in New York, Connecticut, and Rhode Island.
However, Zuanic points out that the group’s collapse has pushed MSO’s share prices to levels where he finds value. The leading dozen multistate operators currently trade at an average price that is less than twice their 2023 sales and less than six times their profits before interest, taxes, depreciation, and amortization (Ebitda), according to Sentieo.com’s analyst tally. All six of these stocks have a buy recommendation from him, and he counsels patience to investors whose dreams have been repeatedly shattered by Congress.
When these companies release their results for the June quarter, several should see a noticeable increase in revenue because of their exposure to New Jersey, where recreational sales started during the quarter. These businesses include Curaleaf Holdings (CURLF), TerrAscend (TRSSF), Green Thumb Industries (GTBIF), and Columbia Care (CCHWF).
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TerrAscend and Columbia Care, the two firms with the lowest prices, have higher debt and interest costs than the other equities. That most likely contributed to Columbia Care’s decision in March to sell itself to Cresco Labs (CRLBF), a decision that shareholders endorsed on Friday. Cresco is exposed to Jersey sales through the combo, of course.
TerrAscend, one of four operators authorized in the northern region of Jersey that borders New York City, views the Garden State as a significant market. Two of its dispensaries are located in the Big Apple’s commuter suburbs.
Additionally, reasonably priced for expanding, high-margin firms are Green Thumb and Curaleaf. Also, they both have a lot of money at a time when the financial markets don’t like small businesses.
Therefore, pay attention when these businesses disclose their recreational sales in New Jersey during the first quarter.
