It’s been a big couple of months for cannabis stocks as state-level legalization is finally starting to ramp up. In a recent victory, the MORE Act finally passed the House of Representatives, which would see the prohibition of cannabis being removed from the banned substances list.
Although the outlook is currently leaving a positive mark on the industry, a Senate vote could still take months before legalization efforts come into full effect. This is now the second time the MORE bill passed the house, but Majority Leader, Chuck Schumer is still pushing back on the introduction, which could pose additional threats to the overall cannabis industry in the year ahead.
Cannabis stocks, also sometimes referred to as pot stocks, are still facing a boom or bust, even as legal cannabis sales topped more than $20 billion in 2020 according to a data provided by Statista. Further projections estimate that the industry could rank in more than $40.5 billion by 2025 if legalization efforts get the green light from the federal government.
Traders and investors have posed bullish sentiments over cannabis stocks, but the year ahead could reveal a different picture.
Ongoing scrutinization, state-level regulations and jurisdictions, and controlling policies are putting the industry in a modern-day democratic chokehold.
Whether the Senate pushes forward with the introduction of the MORE Act in the following months, and if the bill finally passes on the floor; investors should consider how these stocks could light up their portfolios, perhaps not in the coming months, but for long term gains.
The Green American Dream
Looking at the financial prospects of the cannabis industry, for those products and services which are legally sold on the market, 2019 saw the industry rank at more than $13.6 billion, creating more than 340,000 jobs.
So far around 35 states, including the District of Columbia have legalized the sale of medical marijuana, and as of April 2021, some 16 of these states allow the recreational use thereof.
Sentiment over the legalization of marijuana has also been on the rise, with 68% of American adults in favor of federal-level legalization.
But legalization does not only open the floodgates for traders who are looking to jump onto hot stocks that can reap major gains, some policies and lawmakers feel that banning the prohibition thereof could also assist those who have been somewhat unlawfully or unjustly convicted of possession, use, and sale of the substance.
Whether the House can see this through, and the American Green Dream can finally become a reality is only something that time can tell.
There is however a host of new possibilities that could come from federal legalization, it’s a matter of how well traders and investors align their strategies with what market sentiment currently presents.
Jobs, Jobs, Jobs
According to a March 2022 report by the U.S. Bureau of Labor Statistics, unemployment levels were seen declining to 3.6%, as employment figures rose by 431,000 in March.
Some industries that were most severely affected by the temporary closures of facilities such as hospitality, retail trade, manufacturing, and related business services were among the sectors that acquired the most notable job gains in the same month.
While job increases are holding steady, even as the Great Resignation still holds a firm grip on American employers, the marijuana industry offers something else than well-priced stocks, and recreational products favored by millions – job creation.
An industry-related jobs report published by Leafly, in partnership with Whitney Economics reported that the marijuana industry currently holds more than 428,059 full-time employees as of January 2022, the fifth year of consecutive growth higher than 27%.
The same report mentioned that in 2021, it was estimated that the industry produced about 280 new jobs per day, and full-time positions were able to increase by 33% in a single year.
The 2022 Leafly Jobs Report found 428,059 full-time equivalent jobs supported by legal cannabis as of January 2022. Last year, the cannabis industry created an average of 280 new jobs per day.
These jobs are however spread across the industry, from agriculture, production, and manufacturing, retail and sales, legal services, consumer goods, and media relations to maintenance and construction.
Job growth has been steadily on the rise, even as some major companies are struggling to see business take shape in states where recreational use is still barred.
But there is still a lot of work that needs to go into full-scale legalization, even as a Republican-backed bill in Congress that could perhaps see the legalization of the plant for adults 21 and older is receiving minimal traction.
These low-lying efforts are holding the industry back, slowing potential job growth, and cutting veins for cross-state sales and transactions.
Are these efforts helping the industry
While many other industries have been struggling to break through inflammatory conditions and supply chain worries, cannabis has remained somewhat prevalent against all odds. Even with market demand increasing, and efforts towards legalization taking shape, manufacturers, and producers are looking for new channels through which they cultivate innovative products.
Better use of technology application through the means of AgTech could mean that producers can increase crop yields which can lead to more profitable margins. Furthermore, as competition rises, various companies look to develop tech and software capabilities that could lower operational costs, and energy consumption and produce a more reputable market influence.
But these efforts, although positive, still require time and necessary resources. Information provided by Capital Funding revealed that those entrepreneurs and startup owners who deem their companies as “Direct Cannabis Businesses” are still ineligible for an SBA loan.
Although financially, businesses in the cannabis industry have been battling major headwinds to obtain proper recognition, and government financial aid – these factors, among regulatory conditions, are becoming major hurdles that are slowing down industry progress.
Bullish market stocks to consider
As support for the legalization of cannabis continues, and businesses can see overall demand and support growth, what could traders and investors expect from the stock market in 2022?
Block Inc (NYSE: SQ)
Block Inc. which is formerly known as Square has seen a tough trading year, hitting an all-time low on February 22, as shares tumbled to $82.72. Now SQ has been ranking in new returns for investors, with prices zig-zagging between$113.00 and $120.00 per share.
Nonetheless, block Inc. which provides POS solutions and payment infrastructure for businesses has been experiencing positive growth and earnings, as SQ is currently ranked #3 on the Zacks Rank.
Curaleaf (OTC: CURLF)
Even as consumer habits are changing, and some states struggle to adopt a more progressive take on marijuana-based products and services, Curaleaf, one of America’s largest operators, saw revenues soar by 39% in fourth-quarter earnings for 2021.
Over the last five years, revenue has been growing steadily at 250% year-over-year, with stock trades seeing some headwinds in recent weeks, as the company’s second-largest shareholder, Andrey Blokh, a holder of a Russian passport, has placed the company in a tight lock over consumer sanctions.
Perhaps the low-priced stocks could attract more potential buyers, as the company has seen share prices average between $3.99 and $6.50.
Even with this, some investors remain bearish, predicting that CURLF will still take some time to adjust itself after the recent backlash from the consumer market. On the other hand, there’s a positive side to low-priced and well-positioned stock such as CURLF that could make lucrative returns in the next few months.
Tilray, Inc. (NASDAQ: TLRY)
Tilray, which manufacturers cannabis-based medicine and drugs, has provided traders and investors with a different take on the market, as TLRY is currently ranked as a stronghold on the Zacks Rank.
The reason behind the sudden hold is that TLRY is projected to grow more than 44.4% in the next year, which makes the stock quite bullish.
The company is not only in the market of drugs and pharmaceuticals, but it has developed a range of wellness-based products, beverages, and hemp food. These products, while still considered a niche have gained major traction as more and more consumers are looking to adopt sustainable lifestyles.
Cresco Labs (OTC: CRLBF)
Cresco is perhaps one of the leading cross-state cannabis operations in America, as the company has been witnessing exponential growth in the last couple of years.
From a retail and manufacturing viewpoint, all aspects have seen major expansion, which has helped the company generate strong margins and revenue returns. Proper gains from a demanding market are now helping the company lead a new approach in the cannabis market, growing its dominance and influence in the U.S. consumer market.
Its market capitalization of $2 billion does rank it along with other big players but considering its EBITDA growth has exploded by more than 1,000% in the last year, the low-priced stocks make for a solid foundation that could drive up strong gains for investors.
Green Thumb Industries (OTC: GTBIF)
The company which recently opened its 77th retail location in America is becoming a household name among cannabis consumers. Green Thumb also holds more than 96 cannabis retail licenses, so the next few months could perhaps see more of its stores popping up across the country,
Green Thumb focuses on bringing well-priced products to their consumer market, which has enabled them to establish a reputable presence in major cities, with plans on the table to expand in New York and New Jersey.
The latest share prices averaged below $20,00, with April so far looking to average between $15,00 and $17,00 per share, with a market capitalization of more than $4 billion as of 2021.
GrowGeneration (NASDAQ: GRWG)
While other companies named on our list are more focused on the supply chain and direct-to-consumer business, GrowGeneration has been seeing steadfast demand for their hydroponic innovation.
The GrowGeneration business has been able to cater to producers and manufacturers for quite some time, while also being able to benefit from the pandemic, as more and more consumers were looking to tap into the organic gardening market while in isolation.
GRWG has been zig-zagging between sell and hold positions, with prices averaging below $10,00 per share. There has also been an uptick in interest from brokers and investors, who see a lot in the potential that GRWG can grow into this year.
The Bottom Line
It has not been an easy road getting here, as cannabis companies had to face severe financial scrutiny throughout the height of the pandemic, and also seeing minimal financial or government aid.
Now as the tides are starting to turn, and the federal government looks to lift the ban on recreational use of marijuana on a national level, perhaps these companies could see revenues soar over the next few years.
For the most part, 2022 has proved to be another challenging time, as supply chain issues and rising consumer inflation have wiped much of the progress from the board.
But on the stock market, the road forward can present itself as somewhat promising, it’s just a case of whether traders and investors will remain bullish over the future sentiment of the industry.