Cannabis stocks were mostly lower Monday as investors locked in some of the market’s recent gains amid continued optimism for the sector following record sales in 2020 and as more states look to legalize for adult use, including New York.
Sales of medical and recreational cannabis set records in mature markets of Colorado and Oregon last year, while emerging markets of Illinois and Ohio got off to a strong start.
California generated $4.4 billion in cannabis sales in 2020, up from $2.8 billion in 2019. California’s legal market launched in 2018.
Now, New York Gov. Andrew Cuomo is pushing hard for the Empire State legislature to legalize, and get past the discord in the past over how to ensure communities hit hardest during prohibition benefit from a legal sector. The governor has overhauled his approach, has devised a new tax structure and believes this time, it will work.
Korey Bauer, chief investment officer and portfolio manager of the Cannabis Growth Fund from Foothill Capital Management, said investors were taking profits given overall market weakness.
“Oversupply concerns in Canada again could be causing some short-term selling pressure,” he said. ” I think this is something that needs to be watched in the coming months.”
The sector has started the year with a bang, amid optimism the new administration of President Joe Biden will pursue reforms and pass federal bills on cannabis. Even if the Democrat-led White House and Congress fail to change federal laws that continue to classify cannabis as a Schedule I drug, alongside heroin, there are hopes they will usher in safe-harbor banking language and open the capital markets.
“We believe the momentum of legislation at the state level and more importantly federally will continue as catalysts for the sector,” said Alliance Global Partners analyst Aaron Grey in a note to clients. “Regarding companies within our coverage universe, we continue to believe execution within the current state by state legal environment will drive outperformance in the US, while having a low-cost structure will remain key in Canada as pricing pressure persists. “
Those multi-state operators in the U.S. that entered 2020 with healthy balance sheets and the ability to scale were able to reap the rewards, he said.
“In 2021, we expect the same to be true particularly for MSOs that have made investments in supply-constrained limited license states such as PA, MA & IL,” he wrote.
For Canadian licensed producers, 2020 was hit by a slower rollout of retail stores and pricing pressures, which were not offset by the launch of Cannabis 2.0, when edibles, concentrates and other non-flower products came to market, he said. Canada fully legalized cannabis for adult use in 2018.
“For 2021, Canada’s biggest province, Ontario, looks to meaningfully increase the number of stores (as we have already seen in 2H20) which should help increase the overall retail sales,” said Grey. “However, we see pricing pressure persisting given continued oversupply in the industry – primarily in flower and vape categories. “
The Cannabis ETF
was down 3.6% Monday, although it remains up 74% in the past three months, swept up in the Biden rally.
Among individual stocks, Aurora Cannabis Inc.
which is merging with Tilray, was down 5.4%.
Among U.S. MSOs, Curaleaf Inc.
was down 0.7%, Cresco Labs Inc.
was down 3.9% and Green Thumb Industries Inc.
was down 2%, Cannabis software provider Akerna Corp.
was down 7% and KushCo Holdings Inc.
was down 10%.