Cannabis Industry Chart of the Week: Has the Market Rationalized the Prospects for Federal Legalization?

Cannabis stocks closed nearly 9% this week, according to the Alternative Harvest ETF. The market clearly viewed Schumer/Booker’s proposal as little more than a political stance with virtually no chance of adoption. But you may wonder, why such a violent reaction? After all, did anyone seriously expect real federal legalization to be imminent?

  • Our thoughts:

    • Many cannabis advocates prefer an approach that simply delays cannabis (promoting financial access) and removes IRS 280e, leaving most of the rest to the states. This view was eloquently expressed by Kyle Kazen CEO of Glass House Brands: “Let’s get out of the way and let the states do it… the federal government has only done evil here…”

    • Perhaps most important in driving market response is the seeming intransigence of the proposal’s authors. Cory Booker (D_NJ) said he will “come down” to block the passage of less comprehensive reform bills (such as SAFE Act or MORE Act). Booker’s stance appears to be indefinitely delaying these more moderate measures while reaching consensus on social justice, constitutional rights and sentencing reform.

    • Finally, the proposal is at least tangentially raising the specter of interstate commerce, and states with newly established adult usage frameworks will fight hard to keep these tax revenues from moving to cheaper/better farming locations.

  • The market has rationally priced in the diminishing chance of federal legalization. The chart shows the prices of a basket of four groups of cannabis stocks indexed on 4-4-21: Small Canadian (Blue), Large Canadian (Orange), Small US, (Grey) and Large US (Orange).

    • Great Canadians are the worst performing group, as would be expected, as they have the most to gain from federal legalization in the US.

    • The large US is the best performing group, and this makes sense because this group is performing quite well under the status quo.

    • Small US companies are the second worst performers because they would benefit significantly from easier access to capital.

    • Canadian small businesses were the second best performers. Unlike their bigger brethren, their business models do not rely on access to the US market.

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

The Viridian Cannabis Deal Tracker is a proprietary information service that monitors capital raising and mergers and acquisitions in the legal cannabis and hemp industry. Every week the Tracker collects and analyzes all closed deals and segments based on key metrics:

  • Industrial sector (one of 12 sectors, from cultivation to brands)

  • Dollar value of the transaction

  • Region in which the deal took place (country or US state)

  • Status of the company announcing the transaction (public vs. private)

  • Deal Structure (Equity vs. Debt)

  • Key deal terms (pricing and valuation)

The Viridian Cannabis Deal Tracker provides the market intelligence cannabis companies, investors and acquirers use to make informed decisions regarding capital allocation and M&A strategy.

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 worth more than $50 billion in total.

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

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