[Chart] Cannabis Stocks: Is There Any Port In This Storm?

2022 has not been kind to the stock market in general and the cannabis stock market in particular. YTD, the S&P 500 SPY is down 7.7%, and the AdvisorShares PureUS Cannabis ETF MSOS is down 16.3%. MSOS was down 12% last week, the worst week since the ETF was created in September 2020.

• So is there a port in the storm? The graph shows the YTD stock performance of the 99 companies in the Viridian Capital Value Tracker database with 2022 analyst revenue projections. The companies were divided into ten sector groups.

• The green bars show the YTD performance of an equal dollar weighted basket of companies in each grouping. Only 22 of the 99 companies have positive YTD returns. Several interesting observations are apparent in the graph:

  • The worst performing sector is US Biotech, which is consistent with the growth to value rotation theme.

• Smaller market cap companies in both Canada and the US have done significantly better. This outperformance may be related to the more significant institutional presence in the large caps and can also be interpreted as a value movement. Viridian Equity Research has consistently pointed to the better value of the smaller companies due in part to their much lower valuation multiples.

• It is surprising how poorly the US non-plant touching segment has faired. GrowGeneration GRWG and Hydrofarm Holdings HYFM are the worst and 5th worst performers of the entire group, down 40.6% and 33.0%, respectively. GRWG recently slashed its revenue and EBITDA guidance, citing an oversupply in various states.

• There are several plausible reasons for the general market downturn:

  • Years of rapidly expanding money supply are producing the inevitable impact of spurring the highest inflation in most cannabis users’ lifetimes.

• Covid related supply chain breakdowns and labor shortages are exacerbating the inflationary issues.

• The Fed is poised to raise rates several times in 2022, but market observers feel the central bank is already behind the curve.

• Cannabis specific issues are also in play:

• Retail revenue growth has slowed in several key US markets and turned negative in Canada.

• Cannabis stocks are fighting against a rising rate induced sector rotation out of “growth” into “value.”

• Observers have largely capitulated on hopes for federal legalization.

• California continues to look disastrous for a large swath of competitors in 2022.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis and hemp industry. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Industry Sector (one of 12 sectors, from Cultivation to Brands)

• Dollar value of the transaction

• Region in which the deal occurred (country or U.S. state)

• Status of the company announcing the transaction (Public vs. Private)

• Deal structure (equity vs. debt)

• Key deal terms (Pricing and Valuation)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

Photo by Javier Hasse.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.