[Todd Harrison is the cio and co-founder of CB1 Capital and a columnist for Investopedia. The opinions expressed here are those of the author and do not necessarily reflect the views of Investopedia.]
Cannabis, the industry has experienced an infinite number of negative news over the past two years, from regulatory snafus and delays in the illicit market vaping crisis, and more. The resulting demise of a public of cannabis stocks has been well documented, with the cannabis index, and widely held Etfs fall to 70% or more since the beginning of January 2018 to March 2020 the bottom.
For the first time in more than two years, however, there seems to be a light at the end of the tunnel that isn’t affixed to the front of the train. The coronavirus pandemic has disrupted the lives of many people and industries, but it has also brought some of the realities of the bear; among them, the need for a legal framework and regulated world of cannabis, the industry and the tax revenue and the jobs that go with it.
The timing couldn’t be better for the beleaguered industry, and while the recovery will not be linear, a framework for optimism has emerged. The stock market started to sniff out that last month a confluence of factors has led cannabis stocks higher. The context is important, because the industry sentiment has been extremely negative, and investors have been positioned for further declines.
Large-Cap Cannabis Stocks Have Been Heavily Shorted
Large-cap cannabis stocks have been heavily shorted entering May, in spite of many leaders of trading close to all time lows. In fact, when we called around the street in search of a borrowing (necessary to short of stocks) at the beginning of the month, we have not been able to locate a single action. It was a positive proof of cannabis bears had outstayed their welcome and were ripe for getting caught off-sides.
The Cannabis was Deemed “Essential” by the House
The first indication that the cannabis would benefit from the coronavirus pandemic has emerged when it has been deemed “essential” by most of the states; but when the U.S. House of Representatives included federal banking provisions in their most recent relief bill, it was the proverbial stone in the garden. The Senate, for its part, should weigh in on these measures, the next month.
Although it remains to be seen if this legislation will pass before the election, he already has broad bipartisan support, the endorsement of the American Bankers Association, and all the more urgent given the virus potentially transmitted through the cash. Once the business conducted of capitalism opened in the UNITED states cannabis businesses, the cost and availability of capital will help to transform the industry.
UNITED states Operators Post Strong Growth
In spite of the still-uneven playing field, leading U.S. operators reported rash net result for the first quarter, which was even more impressive given the operating context. We continue to believe in 2020 will be back-end loaded as build-outs in line and economies of scale kick in, and expect the best is yet to come given the enormity of the addressable market.
A sampling of several first results:
Curaleaf(CURLF) has the largest footprint and retail brand of cannabis stores in the UNITED states; they have generated $96.5 Million in quarterly revenue and sales growth which was 20% above estimates. Curaleaf has guided to $ 1 billion in annual revenues this year, and generates more revenue than the Canopy of the Growth to 60% of the evaluation.
Green thumb Industries(GTBIF): is the leader of the money-maker among the multi-operator of the state after the publication Q1 revenues of $ 102.6 M (vs is. $92M) and an EBITDA of $25.5 M (vs is. Of us $ 18 million). The competition for the no. 1 spot in the Illinois and Pennsylvania, two leading license limited markets, they produce more revenue than the Canopy of the Growth to 30% of the evaluation.
Trulieve(TCNNF): posted Q1 revenues of $ 96.1 Million (est. $ 91.8 M) and EBITDA of $ 49.4 M (est. $38.7 M). We plan to Florida as the epicenter of the UNITED states cannabinoids of well-being, considering the elderly population and 3.5 X the national order of the average, and that society dominates the state, producing more revenue than the Canopy of the Growth to 20% of the evaluation.
Especially, the information cycle has turned, and the narrative surrounding the cannabis changed several dynamic crystallized. Among them:
- New York, Pennsylvania, Tennessee, New Mexico, and several other cash-strapped states defends the legalisation of cannabis as a tool to help repair their broken budgets. New Jersey and Arizona, among others, have legalization on the ballot in November, adding to the pressure of their neighbouring states.
- The University of Lethbridge, has announced the results of the test has demonstrated the CBD has helped to block the cells that enter the body of the new coronavirus. While the results have been pre-clinical, and there is still a lot to learn, the press coverage has helped to reframe the conversation around cannabis from one of the discretionary vice the health and well-being.
- The U. N. has announced that, after a delay of two years, they will vote in December to postpone the international classification of cannabis. The World Health Organization has already announced their support in the reclassification and the U. N. has never voted against a recommendation of the WHO.
- Recent events have raised the issues of social justice, which has sharpened the lens on the inherent disparities created by the war on drugs and prohibition of cannabis. We expect this dynamic, rightly, persist, and grow louder and louder until many of these wrongs are addressed and unwound; and to provide the political cover to do so.
- The elections are approaching, and the Senate is at stake. If the Republicans lose control of the Senate, who is now the odds on the bet, federal cannabis bill should go forward regardless of who is sitting in the Oval Office next year.
As the markets have begun to price in these catalysts, we have seen a significant improvement in the charts. AMERICAN leaders reclaimed their 200-day moving averages, large-cap Canadian LPs broke through multi-year downward trends, and the volume continued to trend upward.
[Graph for information purposes only – not recommendations]
Cannabis Stocks YTD.
There are no guarantees in life, the market or the policy, especially in the midst of a global pandemic, it would seem that cannabis is one of the few industries on the point of benefit, in a post-COVID of the economy. The regulation of trade-offs alone, particularly, of the bank, which without a doubt would be to allow institutions to invest directly in the UNITED states of cannabis companies—which distinguish it from other potential growth opportunities.
Looked at another way, the cannabis, companies must currently cope with heavy tax treatment, limited access to capital and persistent century-long propaganda campaign designed to smear their products. Imagine what they will do once a more favorable operating environment happen and the company becomes a training on the health benefits of cannabinoids of well-being.
[Warning: CB1 Capital Management has positions in CURLF, GTBIF, TCNNF]