Cannabis Stocks Plunged After Florida Legalization Failed: Rational Reaction Or Market Overreach?

The cannabis market is facing heightened volatility post-election as investor concerns mount over political uncertainty and the fallout from Florida's failed legalization vote, leading to significant selloffs in top U.S. and Canadian cannabis stocks. Adult-use legalization was also rejected in North Dakota and South Dakota.

Given this setup, investors might be asking: was the post-elections selloff an overreaction or a rational market adjustment?

Experts analysts from Viridian Capital Advisors weighed in on the debate.

Market Meltdown: Was The Sell-Off Justified?

In the wake of Florida’s failed ballot vote for adult-use cannabis, the market cap of 31 publicly traded cannabis companies fell by $2.6 billion from Friday, November 1 to Wednesday, November 6.

Florida’s medical cannabis market alone is projected to reach $2.1 billion in sales by 2024.

If adult-use legalization had passed, it could have effectively doubled sales, adding another $2.1 billion.

Applying a conservative 30% EBITDA margin to these potential sales would yield an EBITDA loss of $630 million.

Using a 5x multiple, also considered conservative, the projected decline in market cap would be around $3.15 billion — suggesting that the $2.6 billion markdown might not have been as exaggerated as it seems.

However, there's a caveat: not all companies on the list have operations in Florida, though 81% of the market cap is held by firms actively operating there.

A greater concern is the broader impact on the industry's growth narrative.

Read Also: Cannabis Reform Stumbles In 2024 Elections: A State-By-State Breakdown As Stocks Take A Hit

Some Earnings Added Pessimism

For Viridian Capital Advisors, in addition to the disappointing ballot results, earnings reports from major players including Trulieve TCNNF, TerrAscend TRSSF, Curaleaf CURLF, Cannabist CBSTF and GTI GTBIF have compounded concerns.

The results revealed significant misses, even against lowered expectations.

Aggregate revenues for these companies are projected to be down 0.4% year-over-year and 1.1% sequentially. The decline in EBITDA is 2.2% year-over-year and 4.2% sequentially.

The failed vote has undeniably stretched the industry's growth timeline, leaving investors to weigh potential catalysts against a stark present reality.

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