Cannabis Stocks And ETFs Surged On Marijuana Rescheduling News: WTR's Industry Report Analyzes What's Behind The Optimism

The Department of Justice (DOJ) move to reclassifying cannabis from Schedule I to Schedule III provoked a noticeable uptick in cannabis market activities, as detailed in the latest industry report by Water Tower Research (WTR).

Cannabis ETFs Surge Ahead Of Rescheduling Announcement

According to WTR's report, the U.S. cannabis AdvisorShares Trust AdvisorShares Pure US Cannabis ETF MSOS rose by 2.89% last week, following $13.3 million in inflows, a spike that notably preceded the DOJ’s announcement. The global AdvisorShares Pure Cannabis ETF YOLO also saw gains, climbing 3.77%. The proposed policy change, aimed at acknowledging the lesser potential for abuse compared to other controlled substances, has initiated a 60-day comment period, setting the stage for final rule enactment before the Democratic National Convention on August 19.

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MSOs Q1 Earnings Analyzed

Charlie Bachtell, CEO of Cresco Labs CRLBF, speaking on WTR's podcast “Higher Exchanges,” discussed the potential impacts on the industry. “Every year is now the year of the core,” highlighting the company’s ongoing focus on cost control and operational efficiency.

Below is our update note on @Goldflora_CA's earnings. Cultivation expansion drove a sharp revenue increase and associated expenses led to temporary margin compression. We raised our estimates to reflect a faster revenue build and improving margins. https://t.co/PQliyJ2vqT $GRAM pic.twitter.com/V0Js8apuJA

— Jesse Redmond (@jesseredmond) May 20, 2024

In earnings news, WTR's report pointed out that while first quarter 2024 revenues of Gold Flora GRAMW GRAM grew by 13.2%, surpassing estimates, its adjusted EBITDA fell short due to higher costs linked to cultivation expansion. The report also reviewed the financial performance of top multi-state operators (MSOs), noting the lead of Trulieve Cannabis TCNNF in revenue and adjusted EBITDA growth. Despite market challenges, the top 10 MSOs showed resilience with an average revenue beat of 0.92% and adjusted EBITDA outperformance of 9.19%.

This strong performance contributed to the recent surge, as investors responded positively to the financial robustness of leading MSOs, with eight out of ten generating operational cash flow last quarter.

Read also: Analysts May Need To Revise Cannabis Stock Projections For 2024: 10 Companies Surpass EBITDA Estimates By $37M

Democratic Electoral Strategy Propelling Reform

This proposed reclassification by the DOJ not only sets a new course for the cannabis industry but also aligns with what WTR identifies as a “coordinated democratic effort to advance cannabis reform,” aimed at energizing younger voters ahead of elections.

As the cannabis industry stands on the brink of transformative regulatory changes, stakeholders from all sectors are keeping a close watch, ready to navigate the opportunities and challenges that lie ahead.

Now read: Cannabis Rescheduling: When Will It Happen? Expert Lays Out Timeline, Risks And Wild Cards

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