Investors losing confidence in cannabis for variety of reasons

It’s no secret that finding investor capital in the cannabis business has been a tough game for upwards of two-plus years now, and a new report has found that investor confidence has continued to wane through 2024.

A survey released last week by ATB Capital Markets found a “softening sentiment” among investors in both the United States and Canada with regard to the legal marijuana trade, in part because of lengthy delays in U.S. federal cannabis reform and “failed excise tax reform” north of the border.

The survey, which was answered by 22 institutional investors between Aug. 29 and Sept. 5, found that just 31.8% of investors are currently bullish on multistate operator (MSO) cannabis companies in the U.S. – down from 83.3% in the spring. It also found that 39% of investors in Canada are decidedly bearish following a failed attempt at national marijuana tax changes – up from 29% in the spring.

“The sentiment towards MSOs has turned neutral,” ATB summarized, with a majority of respondents indicating that only a major change – such as uplistings to major stock exchanges, over the traditional cannabis home of the pink sheets and Canadian exchanges – would “increase willingness to allocate more capital” to the sector. Federal U.S. marijuana rescheduling is the other prime catalyst investors are waiting for.

The survey found that if uplistings were suddenly allowed, that would motivate more than 59% of investors to put more capital into cannabis MSOs, and if cannabis rescheduling was completed by the federal government, that would attract almost 32% of investors.

The ATB report noted that even the potential legalization of recreational marijuana in Florida ranks as a lower priority with investors than Congressional approval of the SAFER Banking Act, which would be a financial boon for the entire industry. In the survey results, 27.3% of respondents notched that bill as their second highest priority for investing in cannabis, while only 13.6% put it as their second priority.

Still, there are positive potential signs on the horizon, the survey noted, with 68% of investors confident that U.S. cannabis rescheduling will be completed within the first half of next year, particularly in the wake of former President Donald Trump formally endorsing the policy switch, which was begun in 2022 under the Biden administration. Trump’s support for rescheduling seems to eliminate much of the risk from the expectation that marijuana will be moved to Schedule III from the more restrictive Schedule I.

“If cannabis is rescheduled to Schedule III, most investors (53.3%) believe that the MSOS ETF would rise to a level above $20, reflecting a minimum growth of 191.5% from the current level of $6.86,” ATB reported from its survey findings. “A Trump election is not seen as a key risk.”

The biggest concern about rescheduling, ATB found, is investors worried that a judge may put an indefinite hold on the rescheduling proposal.

ATB noted that “paradoxically, most investors (59.1%) see Tier 1 (MSOs) as undervalued, which aligns with our thesis that MSOs (as a sector) are undervalued on fundamentals,” ATB reported, and singled out Green Thumb Industries (CSE: GTII) (OTCQX: GTBIF), Trulieve Cannabis Corp. (CSE: TRUL) (OTCQX: TCNNF) and Verano Holdings Corp. (OTCQX: VRNOF) as the firm’s “top picks in the space.”

North of the border, ATB found “worsening sentiment” among investors for cannabis in Canada, where the government failed to approve excise tax reform this year as many had hoped.

“The (Canadian) market is still facing challenges with market share volatility and a slowdown in industry growth, with most names failing to reach sustainable profitability,” ATB reported. “There are, however, names that are either executing well … and that are trading at attractive valuations.”

ATB singled out SNDL Inc. (Nasdaq: SNDL) as a top pick for investors among Canadian marijuana businesses.

ATB_Cannabis_Investor_Sentiment_Survey___Softened_Sentiment_As_Investors_Await_Uplistings_and_Rescheduling_(September_11,_2024)

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