Cannabis Stocks On A Sharp Rise, Driven By Increasingly Favorable U.S. ProspectsFebruary 16, 2021
Stock prices for cannabis companies have surged in recent months as investors take new interest in the industry. The newfound momentum comes after a sustained period of reticence by investors that predated the Covid-19 pandemic, during which capital was scarce and companies in both the U.S. and Canada tightened their belts and focused on sustaining operations. However, while cannabis stocks across the board are up in the year-to-date, the increased investor focus has made for a bumpy ride in recent days, with many of the stocks in question surrendering some ground late last week.
“Institutional investors are waking up to the great American cannabis growth story,” said Green Thumb CEO Ben Kovler. “This investment reflects the very real interest, understanding, and momentum behind the potential $100 billion U.S. cannabis opportunity that is happening now.”
There are several reasons for the renewed confidence among the investor class. The greatest is the mounting sense that the dam of federal prohibition in the U.S. is breaking. Each week more states are either detailing plans for legalization—this week it’s Minnesota and Connecticut—or beginning to consider it in places where it would have been unthinkable just a few years ago. The new balance of power at the federal level is also fueling hopes of widespread reform, especially now that Senate majority leader Chuck Schumer is throwing his weight behind the cause by sponsoring and advocating for comprehensive change. At the very least, there is a strong sense that smaller pieces of the puzzle, like opening access to traditional banking for cannabis businesses, will be resolved this year.
Secondly, many cannabis companies are reporting stronger earnings and greater financial stability. Last week, Constellation Brands-backed Canopy Growth reported increased revenues and announced that it expects positive adjusted EBITDA later this year. Canopy’s shares have quadrupled in value since their low point last spring, bouncing back to approximately $40 a share, nearing their high point in the run-up to Canadian legalization in 2019. Aurora Cannabis’ earnings from last week were less impressive than Canopy’s but still beat expectations, further bolstering evidence of a general turnaround. (See updated stock prices for all of the industry’s key players in the table below.)
It’s a similar story with major American producers like Green Thumb and Cresco. The success of recreational cannabis in Illinois and pandemic-fueled bumps in sales elsewhere have yielded steady gains over the past year. Green Thumb, for instance, has climbed from around $4 a share last March to around $37 today, and it recently sold $100 million of stock to a single unnamed investor. Among the share prices tracked by SND Cannabis Edition, every company on the list has seen at least double-digit increases in the year-to-date, with several of them more than doubling since January 1.
The last two weeks have played host to a third factor. After the recent craze over Gamestop stock, which sent shares of the ailing video game retailer careening over $400 apiece before crashing spectacularly, hordes of small investors congregating on the Wall Street Bets subreddit targeted Tilray and Aphria, which they considered undervalued given their recent merger agreement. Tilray stock jumped 50% last Wednesday as users of the forum acted together to buy shares, while Aphria rose 10%. Canopy Growth got a 6% boost and Aurora was up 20%. Like Gamestop, however, these gains were temporary. By Friday Tilray and Canopy’s share prices had returned to their baseline from the beginning of the month, still showing impressive year-to-date growth.
Internet speculation aside, the industry is on a clear upswing as newer recreational markets surge, and additional states eye legalization in response both to consumer demand and the necessity to raise revenues from taxes on the category. Hurdles remain along the road to full-scale legalization, but prospects for a thriving U.S. consumer market for cannabis now appear brighter than ever.—Danny SullivanSubscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning. You will also receive the Cannabis edition as part of your subscription.