Mostly Tricks, Few Treats For Pot Stocks in 2022

Halloween is prime spooky season, but for most investors, all of 2022 has been quite scary. Stocks across the board have taken substantial hits this year, with cannabis particularly affected.

Cannabis' surging pandemic performances have been dashed mostly. Now, Fed uncertainty looms while profitability continues to elude most operators, from MSOs to the ancillary market.

Halloween is just the latest reminder of what is terrifying in cannabis investing. Yet, despite 2022's mostly painful performances, long-term projections remain optimistic among sources.

2022: A Down Year For MSOs

2022 has been a down year across much of the board, including most MSOs, ETFs and ancillary brands.

Former market darlings like Aurora Cannabis Inc ACB have seen tremendous dips this year. The Canadian-based brand saw its trading high in November 2021 when shares reached $8.69. Company lows came in fall of 2022, dipping below a dollar for some time.

Canopy Growth Corp CGC also saw its price per share peak in November 2021 at $15.96. Its low came in July 2022 at $2.13.

The ghastly year led to a significant company pivot, exiting the Canadian retail market in September. On October 25, 2022, Canopy announced plans to enter the US market through a new company, Canopy USA, via its acquisitions of Acreage Holdings, Jetty and Wana Brands.

US options have not fared much better. Examples include Curaleaf Holdings Inc CURLF, which saw its peak share price come in autumn 2021 at $11.37 per share. By fall 2022, company shares dipped to $4.48.

Cresco Labs Inc CRLBF, often considered a market leader, could not avoid the pain of 2022 either. Company share prices peaked in late November 2021 at around $10.42. Like many MSOs, Cresco's low point came in the fall of 2022 at about $2.39 per share.

The down numbers may not be damning evidence for large brands. Morgan Paxhia, co-founder of Poseidon Investment Management, noted that larger US operators typically have higher probabilities for success "and have potential as a treat to be saved for the future."

Conversely, he cautions that capital constraints will continue to challenge smaller operators. Despite the rough year, he expects positive post-Halloween market news to arrive.

Paxhia predicted, "Investors can expect a pleasant surprise around Thanksgiving as more prominent brands with good exposure continue to boost sales in key markets." He highlighted New Jersey as one area of interest.

Scares For Ancillary Brands and ETFs

ETFs are mostly reeling as well. AdvisorShares Pure Cannabis ETF YOLO was down 63% as of October 25, 2022, compared to the year prior. Notable other sagging pot ETFs during the period include, but are not limited:

ETFMG Alternative Harvest ETF MJ is down 63%

AdvisorShares Pure US Cannabis ETF MSOS is down nearly 60%

Horizons Marijuana Life Sciences Index ETF Units Class A HMLSF down 56.3%

Select investors saw the ancillary market as a disappointment this year.

Alan Brochstein, founder of 420 Investor and New Cannabis Ventures, highlighted GrowGeneration Corp GRWG, Hydrofarm Holdings Group Inc HYFM and WM Technology Inc MAPS as low-performing pot stocks.

As of October 25, 2022, Hydrofarm shares traded at 92.75% lower than the year prior. GrowGeneration shares were down 84.67%, while WM Technology's dipped 84.08%.

"Their businesses have performed worse than expected due to problems with their customers, US cannabis operators, [and] the price has come down a lot."

Though Brochstein did offer a ray of optimism for the sector. He feels that "Investors don't seem to appreciate that the challenges are near-term only." 

Will 2022 Remain A Trick Or Turnout A Treat?

Some feel that federal regulatory reform could help change the status quo.

Charlie Alovisetti, a partner and head of corporate at Vicente Sederberg, says the rest of the year's performance hinges on federal regulations. He highlighted the SAFE Banking Act and macroeconomic factors that could determine access to capital raises.

"If companies can raise capital that will help drive cannabis activity," Alovisetti said, adding, "If not, we will see a lot of companies continue to suffer."

With the belief that SAFE could pass during the lame duck session, some in the space seem optimistic about changing prospects. However, Paxhia cautions anyone hinging their hopes on federal reform in the short term.

"There's no clear indication when or if legislation will pass," he said.

Note: The author of this article has shares in AdvisorShares Pure Cannabis ETF YOLO and Cresco Labs Inc CRLBF.

Photo by Dad Grass