420 Investor

Cannabis Investors Suffer Stock Market Losses Despite Continued Growth

Cannabis Investors Suffer Stock Market Losses Despite Continued Growth

Despite more states legalizing marijuana, and significant financial gains throughout the industry, many cannabis investors took big hits on the stock market in 2021, according to Market Watch

Cannabis companies hope to see a reversal of this weak performance in 2022, but oversupply and other challenges mean profits remain elusive. 

As voters and state legislatures continue to approve medical- and adult-use cannabis programs, individual states ramp up their legal cannabis markets. Michigan, Illinois, and the heavily populated Northeast scaled up in 2021, with nascent businesses in each expected to grow in 2022.

“Investors showed up earlier this year because they expected quicker progress towards legalization and left because they became disappointed,” Alan Brochstein, founder of New Cannabis Ventures and 420 Investor, said. Along with negative returns in 2018 and 2019, Brochstein’s Global Cannabis Stock Index shows 2021 giving up gains in the sector from the previous year.

Industry analysts do not expect any forward movement on federal legalization until 2022 at the earliest. But if Senate lawmakers can pass SAFE Banking legislation, more cannabis-based NASDAQ listing could be forthcoming.

Currently, the banking industry is subject to federal regulations and therefore prohibited from offering services to a federally prohibited industry. Any bank that does business with a grower, cultivator, or dispensary risks charges of money laundering or aiding and abetting a federal crime.

SAFE Banking would allow cannabis businesses to expand from cash-only transactions and open banking accounts, write checks, and process credit cards. With this one change, dispensaries would become measurably safer from robberies and burglaries. 

The U.S. Food and Drug Administration (FDA) could take the lead on designating CBD as a nutritional supplement or food ingredient. 

Kim Stuck, CEO and founder of Allay Consulting, which advises cannabis companies on regulatory matters, supports regulating CBD as a supplement or food to make it more widely available and safer for consumers. She’s frustrated by the FDA’s lack of movement for nearly three years.

“You assume that the government is regulating them, and they’re not,” said Stuck. “And I don’t think consumers know that.”

The Council for Federal Cannabis Regulation sent a letter to Secretary of Health and Human Services Xavier Becerra regarding unregulated CBD products on the market. They requested a meeting to “address an escalating public health and safety crisis in the U.S. affecting vulnerable populations, children, and the general population.”

Because CBD is the active ingredient in the seizure medicine Epidiolex from Greenwich Biosciences, the FDA regards it as a drug that prevents its regulations as a food additive or food ingredient.

While Canadian cannabis companies such as Canopy GrowthTilray, and Aurora Cannabis continue their pattern of acquisitions, the lack of progress in Washington D.C. is stifling the possibilities for further expansion from U.S. or Canadian companies.

According to Brochstein, leading multistate operators such as Verano Holdings and Curaleaf will continue to see strong growth from a combination of acquisitions and organic sales increases. Another critical factor for potential earnings will be the timing of New Jersey’s commencement of legal adult-use sales and moves by New York to start its process to issue cannabis business licenses with an emphasis on social equity.

Stuck is encouraged that the cannabis business is expanding in New Jersey and New York, while states such as Michigan continue their cannabis ramp-ups.

“The green wave is upon us,” said Matt Melander, president and chief financial officer of Levia, a Massachusetts-based maker of cannabis-infused seltzer water. “A lot of states are finally getting recreational or medical cannabis. We’ll continue to see growth of this consumer industry, regardless of federal changes.”

There is no question 2021 was a challenging year for businesses to attract customers during the pandemic and invest money to beef up their online presence. But the pandemic also gave people more time at home and more opportunities for them to change or break out of longstanding routines, such as trying a joint for the first time.

“More time at home gave people reason to reconsider their preconceived notions about cannabis and spur them to try it,” said James Ontiveros, CEO of WeaveIQ, a software provider for cannabis companies based in Boulder, CO. “There were significant spikes in online ordering, curbside pickup, and overall demand. We don’t expect these trends to die down any time soon.”

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