According to the data, an overwhelming majority of leading multistate cannabis operators (MSOs) in the United States have yet to see any quarterly revenue gains at all. The colossal annual loss they all saw was between $750 million and $1.1 billion.
Such a huge financial gap is quite disconcerting, but it may not be a surprise to many since there have been indications it’s been coming for a while. Given the magnitude of the losses, financial institutions would be better suited to assist in the development of small businesses and the support of families rather than continuing to fund these losses after the fact.
About The Losses
While the multistate cannabis operators (MSOs) have announced dramatic cost-cutting measures in recent weeks, it doesn’t seem to be enough to stave off losses. In a recent project, we looked at the top 12 MSOs and compared their performance during a three-month period (the first quarter of 2022 against results from the third quarter of 2021).
Investors care more about the future than they do about the past, and this quarter was no acception.
What’s noteworthy is how little there is linking missing EBITDA projections and how the stock performed. According to Viridian, the firm that outperformed EBITDA expectations the greatest in terms of percentage was Nevada-based Planet 13 Holdings, which had the lowest relative stock performance.
“In the meantime, TerrAscend (with offices in New York and Toronto) missed estimates the most,” Colombo wrote, “although the stock slightly outperformed the market.”
The stock prices of cannabis companies have been pummeled in recent months, owing to Congress’s lack of movement in altering the country’s marijuana regulations. Investors in cannabis stocks are now taking into account the following considerations, according to Colombo:
- How effectively is a business set up to profit from the newly legalized recreational cannabis marketplaces in New Jersey and New York?
- Is a business a possible takeover target?
- What is the current state of the company’s liquidity?
- Will it have to raise funds in an unfavorable economic environment to do so?
Where MSOs Stand
A new report from Marijuana Business Daily shows that medical marijuana sales are down across the board, with Trulieve Cannabis taking the top rank in revenue and Curaleaf seeing a 2% drop.
The report also found that MSOs often see a significant increase in sales during the December holiday season, followed by a drop in revenue following the New Year.
Cannabis businesses will also face revenue-squeezing challenges in 2022, such as falling pricing. However, inflation in the larger economy has an impact on the amount of money customers have to spend on optional or recreational items like cannabis.
Trulieve’s quarterly report shows that the company continues to hold a large share of the market for medical cannabis in Florida, but its revenues have declined across the board.
According to corporate regulatory documents, Trulieve is the market leader in Florida’s multibillion-dollar medical cannabis industry and has market-leading retail positions in Arizona and Pennsylvania.
However, Trulieve does not yet have a presence in New York or New Jersey, and it is facing increased competition in Florida, where it once held around half of the market share. According to the state’s weekly update on May 27, Trulieve still has about 50% of retail flower sales in Florida, but its proportion of sales of other THC products has declined to around 40%.
The cannabis market in Florida is booming – but it’s not all sunshine and rainbows.
In a recent research note, Pablo Zuanic, an investment analyst at Cantor Fitzgerald in New York, calculated that Arizona, Florida, and Pennsylvania combined accounted for nearly 94 percent of Trulieve’s sales in the first quarter. Only Arizona has an adult-use market out of the three.
Trulieve management reaffirmed full-year sales guidance of $1.3 billion to $1.4 billion, but Zuanic said the high end of that range “may be a stretch in the current environment,” especially if residents crossing the border to buy recreational cannabis in New Jersey hurt medical cannabis sales in Pennsylvania.
Trulieve and Curaleaf have been able to stay above water in the first quarter of this year, according to Cowen & Co. analyst Vivien Azer.
“There are no obvious signals that its core markets (such as Pennsylvania) would go recreational in 2022 or even 2023,” he added.
Trulieve, on the other hand, is “expected to stay opportunistic” in terms of possible mergers and acquisitions to expand its footprint’s depth and/or breadth, according to Zuanic. Curaleaf, however, is well-positioned to benefit from future recreational marijuana markets on the East Coast, with operations in Connecticut, New Jersey, and New York.
Investor Spotlight On Cresco
Cresco Labs, a Chicago-based medical cannabis company, is expected to join the ranks of Trulieve and Curaleaf once it completes the acquisition of Columbia Care.
Cresco Labs currently has operations in six states: Illinois, Nevada, Pennsylvania, Ohio, Maryland, and Michigan and they are currently in the process of acquiring Columbia Care for about $2 billion.
Columbia Care’s revenue decreased by 12% quarter over quarter, the most among all MSOs.
According to a recent investment note by Cantor Fitzgerald’s Zuanic, Cresco has released guidance for “muted growth” in the second quarter of this year. However, if and when the Columbia Care deal is completed (which is expected in late summer or early fall), Cresco will be present in eight more states—including New Jersey and Virginia—and will have added over 200 employees to its workforce.
The cannabis industry is expanding rapidly, and Cresco Labs has plans to make it even bigger. The corporation is predicted to have the top or second slot in Colorado, Illinois, Massachusetts, Pennsylvania, and Virginia.
Zuanic also cautioned about potential investment risks, including the integration of the Columbia Care acquisition, weak growth prospects, and increased competition in crucial regions like Illinois and Pennsylvania.
While there are some positive notes for certain cannabis companies in the legal U.S. market, the trend for the majority is definitely one of loss – and enormous loss at that. While large companies, such as Curaleaf, Trulieve, and now Cresco, have the necessary funds and investment opportunities to make it in the declining market – many small operators do not. It’s likely that they will be taking the biggest financial hits because of this, possibly being knocked out of the market entirely.
It’s imperative that financial institutions refocus their attention on building out small businesses, rather than helping to keep families above water after losses have already run them to the ground.
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