Investing In Marijuana Stocks 2017: Last Week Was The Best So Far

Viridian Capital Advisors, one of the world’s leading financial and strategic advisory firms for the cannabis industry, publishes two reports every week. One tacks the performance of its Cannabis Stock Index, and the other one tracks the most recent investment and M&A activity in the marijuana space.

Benzinga recently had the chance to chat with analyst Harrison Phillips, who shared an update on the movement of marijuana stocks, and some of the latest M&A activity, deals and capital raises in the cannabis industry.

The Best Week Of The Year

The week ended January 27 was "the top performing week thus far, and the seventh straight week of gains," Phillips commented. As of January 27, the Cannabis Stock Index had gained 21.9 percent year-to-date, following a spike of 7.3 percent in the fourth week of 2017.

"Once again, the index saw quite varied returns, with seven of the 12 index sectors showing positive gains. We saw sector in both the 'Touching the Plant' and 'Ancillary Products & Services' segments realizing both positive and negative returns,” the analyst added.

"The two sectors that had double digit gains and losses were miscellaneous ancillary and consumption devices sectors [respectively],” the expert continued. “Both these changes were due to a single security in each of these sectors. So, we are seeing not only varied returns between the sectors, but also, quite varied returns within the sectors. Both of these are characteristics of an early nascent market [which includes companies] at market cap levels that could be significantly influenced even by a couple of contracts or joint ventures. So, we tend to see more price movement at the lower end of the market leading to these larger changes.”

Sector Multiples

Moving on to the multiples section of the report, Phillips pointed out that Viridian updates the financials when they get them – once per quarter. "We are expecting to get another round of financials in the middle of February. However, one thing to note about these multiples is the revenue number in the calculation only changes once a quarter. What we are seeing is, as the index continues to rise, the multiples are rising with it because the market caps change but the revenues won't come out necessarily for another quarter,” he voiced.

Addressing the real estate market, the analyst noted that the multiple is "slightly skewed as the revenues of one of the companies in the sector are quite low [...] making the real estate multiple seem much larger than it is."

Year-To-Date Performance

Finally, Phillips went into the Index’s year-to-date performance. "We saw the high volume on the first day of the year. Then, volume was pretty normal from January 4 thru January 13; we then saw the dip in volume due to Martin Luther King Jr. Day on the 16th, a little bump in volume on the 17th— Then, last week we saw something interesting,” he noticed.

"Last week started with slightly above-average volume on January 23rd, and increasing volume on the 24th and 25th. But, we saw a material drop in volume on the 26th— When we took a look at it, a few of the more highly-traded securities (could be companies that have lower stock prices or companies that have recently released news and developed a little bit of trading momentum) saw lower trading volume on Thursday and Friday of last week. That's what reduced the trading in the index to those levels."