Taking Another Look at Cannabis Stocks
What you need to know:• Sentiment for cannabis stocks remains at all time lows with the MSOS and MJ ETFs down 95% and 93% respectively from their highs.
• We believe there are solid names in the sector that have formidable growth and expanding margins albeit the tough pricing environment.
• The sector trades at historically low multiples, with the Canadian LPs at 7.3x 2025E EBITDA and MSOs at 6.5x.
• We review the regulatory changes over the last few years as well as what is in the pipeline for 2025 and beyond.
Sentiment for cannabis stocks remains deeply negative, weighed down by a combination of regulatory uncertainty, slowing growth, pricing headwinds, and a lack of institutional capital in the industry. Over the last few years, many companies have faced declining revenues, high debt burdens, and massive dilution. Despite periodic hype around potential U.S. federal legalization or rescheduling efforts, legislative progress remains slow and unpredictable. As a result, investor confidence is at a low point, with cannabis stocks trading at historically depressed valuations, and the sector struggling to regain momentum. As such, the MSOS and MJ ETFs are down 95% and 93% respectively since their highs in 2021.
However, we are starting to see a shift with many of the businesses resuming revenue growth and expanding margins; all while trading at single-digit multiples. Thus, we believe it is an opportune time to revisit the thesis behind some of these firms and the various changes happening in both the Canadian and U.S. markets.
Novicius is engaged in the development, acquisition and production of oil and gas interests located in Alberta, Canada and TX, the United States. Co.'s operations consist of a 0.5% NCOR in a natural gas well located in Haynes, Alberta, Canada, a 5.1975% working interest in a natural gas unit located in Alberta, Canada and 85% working interest before payout (69% working interest after payout) in Matthews lease comprising 2,629 gross acres of land in Zavala County, TX. Co. also has a 0.3% net selter return royalty on 8 patented mining claims located in Red Lake, Ontario, Canada.
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