Cannabis Stocks Are Primed After Four Months of Consolidation

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It was 13 months ago that we shared our perspective that a new bull market had begun in March. Since then, the New Cannabis Ventures Global Cannabis Stock Index has indeed rallied spectacularly, rising more than 84% since we discussed the “third wave in cannabis investing” last May. We cited several factors that led us to believe the rally that was underway would be sustainable, including additional states legalizing, which has been the case, and improvements in key markets that had already legalized. After a massive rally in Q4, we reiterated our optimism, discussing 9 potential growth drivers for the year ahead.

As we near the mid-point of the year, we are pleased with how events have played out so far. The stocks have tracked the progress being made, with the Global Cannabis Stock Index up 33.7% so far. Of course, we are far from the highs set in February, with the index almost 36% below the 2021 closing high. We explained near the end of Q1 why stocks had pulled back, and now, 2 1/2 months later, the index has consolidated slightly lower.

We think this is a time for long-term investors to be patient. The fundamentals are as good as they have ever been for the industry, even if the stocks are acting like no one cares. Ultimately, the prices will track the fundamentals, and strong growth is likely baked in for years to come as recently legal markets, like Arizona, Illinois and Michigan, continue to ramp up and new markets launch adult-use sales, like New Jersey, New York and Virginia. The MSOs are dominant in all three of these markets and are poised to benefit as the new programs go live.

Beyond overall market growth, we continue to view M&A as an additional growth driver for many MSOs, with the highly fragmented industry ripe for consolidation. The well-capitalized MSOs continue to pay what appear to be very attractive prices for assets. M&A isn’t limited to just MSOs, as we are seeing substantial consolidation by Canadian LPs as well as ancillary companies.

Cannabis stocks overheated early in the year, and the cooling off period has now hit four months. A consolidation of this nature can test one’s patience. As we reevaluate our bullish thesis that we shared going into the year, we are even more excited by the fundamental prospects for the cannabis industry. For subscribers at premium subscription service 420 Investor, we assess not only the fundamentals, but also valuations, technicals and sentiment, which we refer to as the four legs of the chair. From our perspective, the chair is very sturdy, and we remain optimistic that cannabis investors will continue to be rewarded in 2021.

Invest in Leading Cannabis Companies
This week’s newsletter is sponsored by Global X

While federal prohibitions complicate the business landscape, it is still possible to invest legally in cannabis. The Global X Cannabis ETF (POTX) delivers exposure to a variety of publicly listed cannabis companies from around the world in a single trade. POTX is listed on Nasdaq and can be accessed from leading brokerage apps. Learn more.

New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

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View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks that generate industry sales of more than US$12.5M per quarter.

Stay on top of some of the most important communications from public companies by viewing upcoming cannabis investor earnings conference calls.

Discover upcoming new listings with the curated Cannabis Stock IPOs and New Issues Tracker.


Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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