Marijuana Legalization: U.S. Companies Start to Break Out
Pot investors are celebrating!
Why? A lot of it has to do with the upcoming presidential election.
Cannabis shares jumped last week when vice presidential candidate Kamala Harris said she and presidential nominee Joe Biden would look to decriminalize cannabis if they won.
Harris is also one of the lead co-sponsors of the Marijuana Opportunity Reinvestment and Expungement Act. The U.S. House of Representatives was supposed to vote on this bill last month but delayed the vote until after the election.
Among other things, this bill looks to expunge the criminal records and conduct sentencing review hearings of people currently serving time for cannabis-related crimes.
But the cannabis sector got an additional tail wind hours later when Vermont greenlit legal sales. And the state passed a separate piece of legislation to automate the expungement of prior cannabis convictions.
This duo sent cannabis shares charging higher.
Over the past month, shares of the newly debuted AdvisorShares Pure US Cannabis ETF (NYSE: MSOS) and the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) have taken off.
The American multistate operator (MSO) ETF has jumped 16% as its Canadian counterpart has risen roughly 3.5%. And the majority of these gains have taken place since the vice presidential debate and the Vermont announcement.
This adds to the momentum that U.S. cannabis will enjoy on election night, as five states have legalization measures on the ballot.
And this is setting up to be an opportunity for growth at discount prices!
The Undervalued Growth Opportunity
I’ve long stated that I believe the global cannabis market will be worth $200 billion by 2030. I also believe the U.S. will make up a large chunk of that, at around $80 billion by then.
Although there’s been a recent pop, U.S. MSOs are still trading at attractive valuations.
For instance, the American cannabis market is projected to top $37 billion by 2024.
At the same time, the Canadian market is forecast to be worth around $5 billion by then.
So let’s break this down…
The current market cap of Canopy Growth Corp. (NYSE: CGC) is $7.14 billion after last week’s rally.
Cronos Group‘s (Nasdaq: CRON) is a little more than $2 billion.
Aphria‘s (Nasdaq: APHA) is around $1.8 billion.
And the rest of Canada’s “Big 7” – Aurora Cannabis (NYSE: ACB), Hexo (NYSE: HEXO), OrganiGram Holdings (Nasdaq: OGI) and Tilray (Nasdaq: TLRY) – have market caps of $1 billion or less.
Just those seven Canadian cannabis companies alone have a combined value of $13.1 billion. That’s more than twice Canada’s market opportunity by 2024.
On the flip side, Curaleaf Holdings (OTC: CURLF) is the largest U.S. MSO with a $4.7 billion market cap.
Green Thumb Industries (OTC: GTBIF) has a market cap of $3.29 billion.
Trulieve Cannabis’ (OTC: TCNNF) is $2.47 billion… Cresco Labs‘ (OTC: CRLBF) is $1.47 billion… Columbia Care (OTC: CCHWF) has a market cap of $899 million… Harvest Health & Recreation (OTC: HRVSF) is valued at $564 million… And Acreage Holdings (OTC: ACRHF) is worth $273 million.
Now, those seven combined are valued at $13.67 billion – slightly more than their Canadian counterparts.
But they’re still worth considerably less than the $37 billion the U.S. market is forecast to be worth by 2024.
That’s why I continue to be bullish on American MSOs, particularly because we have so many positive catalysts on the horizon.
But wait… there’s more!
More Moves to Come!
Third quarter earnings season officially kicks off this week as bank stocks begin reporting.
And the cannabis sector will also begin to dip its toes into earnings.
Aphria will report first quarter results on Thursday before the opening bell. Shares of the Canadian LP jumped to 52-week highs in recent days, as Wall Street forecasts CA$159.73 million in revenue with a loss of CA$0.04 per share.
Shares are now up more than 22% year to date. They’ve seen a tremendous turnaround since the end of September.
But that’s not the only cannabis news that’s expected to move the needle this week.
After the bell on Wednesday, we’ll hear earnings from extractor and white label manufacturer The Valens Company (OTC: VLNCF). And then on Thursday after the market’s close, American MSO MedMen Enterprises (OTC: MMNFF) will report fourth quarter results.
These two have not enjoyed the same recent success as Aphria has.
Year to date, both have seen their shares tumble more than 40%.
But on Thursday, Valens is projected to report CA$17.63 million in revenue.
And MedMen’s revenue is expected to tick marginally higher to $42 million with its losses shrinking to $0.06 per share.
Cannabis shares jumped on Vermont legalization news and the Democrats’ promise to make a change at the federal level. I’ve already stated here that cannabis is poised to be election night’s biggest winner. We’re seeing that optimism begin to materialize. And for U.S. MSOs, this could be just the beginning of a breakout higher!
Here’s to high returns,
The Cannabis MSOs Offering Growth at Value Prices
September 29, 2020