U.S. cannabis stocks ended the week on a high note, benefiting from several positive developments and increased optimism from institutional investors.
Favorable Cannabis Survey Results
ATB Capital Markets conducted a cannabis survey that revealed investors have grown more optimistic about the cannabis industry compared to six months ago. This positive sentiment stems from expectations that the U.S. government will reclassify cannabis from Schedule I to Schedule III under the Controlled Substances Act.
Optimism for Recreational Marijuana in Florida
Kim Rivers, Chief Executive of Trulieve Cannabis Corp., expressed optimism about the possibility of a referendum on recreational marijuana being added to the Florida ballot in 2024. The Florida Supreme Court recently heard oral arguments regarding this issue, despite objections from the state attorney general. Rivers hopes that the judges will prioritize the law and allow Floridians to vote on this important initiative.
Growing Support and Legalization
Ohio recently became the 24th state to legalize recreational cannabis, marking another significant development for the industry. Additionally, a Gallup poll indicated that a record-breaking 70% of the U.S. population now supports legalized cannabis.
As a result, over half of the U.S. population now resides in states where adult-use cannabis is legal.
Market Performance
Several cannabis companies witnessed positive market performance this week. The AdvisorShares Pure U.S. Cannabis exchange-traded fund (MSOS) saw a 6% increase, including a 2% boost on Friday. Green Thumb Industries (GTBIF) experienced a 4% increase this week, with an additional 1.9% rise on Friday. Cresco Labs Inc. (CRLBF) observed an 11.4% increase, while Trulieve (TCNNF) saw a rise of 6.4%, and Verano Holdings Corp. (VRNOF) experienced an impressive 23% increase.
However, some companies experienced slight declines, such as Curaleaf Holdings Inc. (CURLF), which fell by 1.8% this week. On the other hand, Ary Wellness Inc. (AYRWF) witnessed a significant rally, with a 27.8% increase.
Potential Rescheduling of Cannabis
The Drug Enforcement Administration is currently reviewing a recommendation from the U.S. Department of Health and Human Services to reschedule cannabis. This ongoing review indicates the continued progress and importance placed on the future of cannabis in the United States.
Institutional Investors Remain Cautious as Cannabis Industry Awaits DEA Recommendation
Despite their optimism about the cannabis industry, institutional investors have not made any significant changes to their exposure to cannabis stocks in the past six months, according to a recent survey by ATB Capital Markets. This hesitation may be attributed to past disappointments caused by regulatory setbacks. Investors are now eagerly waiting for a re-scheduling recommendation from the DEA before making any major moves.
U.S. Attorney General Merrick Garland has acknowledged the need for an update to the Cole memo, which currently protects state-legal cannabis companies from federal intervention. The memo was revoked during the previous administration. These potential regulatory changes within the next 24 months could have a positive impact on the industry.
Despite these uncertainties, the ATB Capital Markets survey predicts that cannabis multistate operators will surpass the performance of the S&P 500 over the next year. This indicates the long-term growth potential of the industry.
In a separate development, Green Thumb Industries has been recognized as a leading player in the cannabis space and received an overweight rating from Zuanic & Associates. This endorsement, along with anticipated favorable regulatory developments, further highlights the positive momentum in the industry.
Additionally, some cannabis companies are making progress in managing their debt. Trulieve announced its plan to redeem all outstanding 9.75% senior secured notes due in 2024, amounting to $130 million. Ayr Wellness has also reached an agreement with senior noteholders to extend the maturity date of its debt and secured $50 million in new financing. These actions demonstrate the industry’s commitment to financial stability and long-term growth.
In conclusion, while the cannabis industry navigates through regulatory challenges, there are several positive indicators suggesting a promising future. With the potential support from institutional investors, regulatory updates, and effective debt management strategies, the cannabis industry is poised for continued growth and success.
Also read: Curaleaf and Canopy Growth fall short of third-quarter analyst expectations, while Ascend Wellness and Green Thumb Industries surpass forecasts
