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Global Cannabis Stocks Significantly Underperformed In 2022, But Trend Expected To ‘Reverse’ In Near Future

THE global cannabis industry’s stocks have performed far worse than the general markets throughout 2022, with nearly US$30bn wiped off the value of the world’s largest 20 cannabis companies. 

According to Prohibition PartnersThe Global Cannabis Report: 3rd Edition, launched today, the residual fallout from the pandemic and ongoing war in Ukraine have dragged global stock market prices down 25% this year. 

Cannabis stocks, however, have been nearly four times as volatile, experiencing an overall decline of around 60%. 

Despite the ‘pessimistic outlook’ of the markets, Prohibition Partners notes that this downward trend is expected to ‘reverse in the not-too-distant future’ as sales and profitability continue to improve across the globe. 

The Markets 

Following a dramatic peak in stock prices across the cannabis industry in 2021, largely due to the victory of the Democrats in the US House and Senate, 2022 saw a sharp and unforgiving reversal of investor sentiment. 

The report tracked two leading EFTs (exchange-traded funds) between January and late October 2022, using both as proxies for the cannabis and general markets. 

While both the Vanguard Total Stock Index and the Alternative Harvest Fund saw ‘general declines’ across the period, the latter was much steeper, due to what the report describes as ‘the ongoing reappraisal of stocks which were overhyped in the early days of the industry’. 

The poor performance of cannabis stocks also impacted the number of cannabis companies seeking to raise capital over the same period, though it’s worth noting there has been a marked increase in activity since October this year. 

In the US, capital raises in the cultivation and retail cannabis sectors dropped nearly 70% compared with the same period in 2021, in which capital raises experienced a sharp rebound. 

Debt raises also fell by 39.9%, but accounted for 93% of capital raises this year, while equity raises were down 96% and none have been above US$25m for the first time. 

This trend was mirrored in the volume of M&A transactions over the period – falling sharply against 2021’s peaks, which were driven up by blockbuster deals from Tilray and Jazz Pharmaceuticals. 

Even with these deals removed from the equation, cannabis M&A deals declined 61.3% over the period on a year-on-year basis. 

Despite this, Prohibition Partners argues that the decline ‘should not be viewed strictly as a bad omen’, pointing out that volumes were still far higher than in 2020 and that an increasing number of players continued to make investments across Europe. 

Rising Sales 

Investor confidence, according to the report, has not yet caught up with the growth of sales across both the North American and international stages, which marked ‘another very significant year in the evolution of the cannabis industry’. 

The ongoing adoption of medical and adult-use cannabis across the globe has ‘been a driving force’ for the revenues of the top 10 cannabis-focused companies this year, which totalled almost US$2bn. 

Between Q2 2021 and Q2 2022, the average US MSO (multi-state operator) saw revenues increase by 22%. 

This was not reflected in profits, however, with operating losses ‘still the norm for large cannabis companies’ across North America, but ‘especially’ US companies. 

According to data from Whitney Economics, just 42.4% of US cannabis companies were turning a profit, while 37.4% were break-even and 20.3% continued to operate at a loss. 

In the US, this was largely due to increases in costs associated with companies’ inability to move their products between state lines; however, in Canada, companies were contending with a shift in global supply chains. 

The top ten licensed cannabis producers in Canada have seen their market share decline domestically from 75% in Q2 of 2021 to around 60% at the time of writing. 

This trend was down to a significant growth in the number of ‘micro-producers’ competing for market share, thought to number above 250. 

Internationally, however, Canadian operators have been hit by a decline in the price of medical cannabis and a drop in its share of the export market. 

Exclusive data secured by Prohibition Partners from Canadian customs authorities show that between January 2020 and October 2022 the average wholesale price of medical cannabis flower being sent to Germany fell by 20% from US$2,833 per kg to US$2,361 per kg. 

Furthermore, Canada’s exports are expected to increase 50% by weight in 2022 year-on-year, but only by 32% in terms of value. 

Click here to access the full version of The Global Cannabis Report: 3rd Edition. 

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