Cannabis Stocks Are Among Best Performers In 2022 As Earnings Season Nears

After a rough start in 2022, cannabis stocks seem to have bounced back quickly to become the best performers year-to-date, outpacing the broader stock market or other high-risk sectors.

During the first four weeks of 2022, cannabis stocks declined 18.4% in the New Cannabis Ventures Global Cannabis Stock Index, with the index rallying 15.6%, leaving it down 5.7% year-to-date.

The Great Cannabis Bounce-Back

American weed companies appear to have rebounded most effectively, given that the NCV's American Cannabis Operators Index, which currently includes 19 members, increased by 22.6% since January 28 – the lowest closing price since October 2020. The index has now gained 6.7% year-to-date.

Among factors helping performance include such events as Verano Holdings' VNOF acquisition of Goodness Growth, even though the sub-sector of the market has enjoyed broad interest over the past two weeks, as well as a rebound by MSOs, NCVs' Alan Brochstein said.

In addition, NCVs' Canadian Cannabis LP Index, currently down 1.3% year-to-date, has rallied 12% over the past two weeks. The NCVs' Ancillary Cannabis Index, still down 12.4% year-to-date, has increased 12.8% over the same period.

Moreover, if this pace continues over the next 14 days, it would be the first monthly gain in the Global Cannabis Stock Index since last February.

While this rally seems to be related to the long-anticipated federal cannabis reform, other factors such as consolidation, easier year-over-year comparisons for cannabis sales, and the introduction of adult-use cannabis in New Jersey affect the end result.

Another Earnings Season

What's interesting is that the earnings season ahead of us will be a good test of the resilience of this rally, Brochstein said.

"In our view, expectations are modest for Q4, so there is likely to be little disappointment with the historical results," Brochstein continued. "Instead, forward guidance could be more challenging. The slowdown in cannabis sales in January could extend the cautiousness that some companies expressed in November, but an even bigger factor is the continued delay in New Jersey. Without a clear line of sight to the start date, the 2022 forecasts could be at risk. We believe that this is mostly priced in."

Photo: Courtesy of Benzinga