Poll signals more bullish cannabis sentiment as stocks end the week with gains

By Steve Gelsi

Green Thumb Industries, Cresco Labs and Verano move up, as the ATB Capital Markets survey of institutional investors signals more optimism around cannabis rescheduling

U.S. cannabis stocks finished out the week in positive territory on Friday after favorable developments on a number of fronts as well as bullish sentiment from institutional investors.

ATB Capital Markets said its cannabis survey indicated that investors are more optimistic about the cannabis business than they were six months ago on expectations that the U.S. government will reschedule cannabis, moving it to Schedule III from Schedule I under the Controlled Substances Act.

In other key developments, Trulieve Cannabis Corp. (TCNNF) Chief Executive Kim Rivers said she's optimistic that a referendum on recreational marijuana will be placed on the Florida ballot in 2024. The Florida Supreme Court heard oral arguments in the case after the state attorney general filed objections.

Rivers told analysts the company is hopeful that the Florida judges will "ignore the political rhetoric, stick to the law and give Floridians the opportunity to vote on this important initiative."

The measure will require 60% voter approval to become law. Florida is one of the largest states in the U.S. by population.

Also this week, Ohio became the 24th state in the U.S. to allow recreational cannabis, and a Gallup poll showed a record high of 70% of the U.S. population in favor of legalized cannabis.

With the addition of Ohio, more than half of the U.S. population now resides in states where adult-use cannabis is legal.

For the week, the AdvisorShares Pure U.S. Cannabis exchange-traded fund MSOS is up about 6%, including a boost of 2% on Friday. Green Thumb Industries (GTBIF) is up 4% this week, including a 1.9% boost on Friday. Cresco Labs Inc. (CRLBF) is up 11.4% this week, while Trulieve (TCNNF) is higher by 6.4% and Verano Holdings Corp. (VRNOF) is up by 23%.

Curaleaf Holdings Inc. (CURLF) is down 1.8% for the week and Ary Wellness Inc. (AYRWF) has rallied by 27.8%.

Meanwhile, the Drug Enforcement Administration is currently reviewing a recommendation from the U.S. Department of Health and Human Services to reschedule cannabis.

While institutional investors may be more optimistic about cannabis, the ATB Capital Markets survey also revealed that they have not increased or reduced their exposure to cannabis stocks in the past six months.

This data point "suggests that investors have been burned enough by regulatory false starts and are waiting for an actual re-scheduling recommendation from the DEA," the survey said.

U.S. Attorney General Merrick Garland has also said he's working on an update of the Cole memo, a measure that prevents federal law-enforcement agencies from cracking down on state-legal cannabis companies. The memo was rescinded during the Trump administration.

Overall, cannabis multistate operators are expected to outpace the S&P 500 SPX over the next 12 months, the ATB Capital Markets survey said.

Meanwhile, Green Thumb Industries was initiated with an overweight rating at Zuanic & Associates as a blue-chip name in the cannabis space. The note also cited potential favorable developments on the regulatory front over the next 24 months.

In another positive sign, some cannabis companies have managed to redeem debt.

Trulieve said this week that on Dec. 1 it will redeem all of its outstanding 9.75% senior secured notes due 2024 with an outstanding principal of $130 million.

Ayr Wellness said on Nov. 1 that it reached an agreement with senior noteholders to extend the maturity data by two years. It also received a $50 million commitment of new-money financing.

All told, Ayr Wellness will have retired or extended the maturity on nearly $400 million in debt for an additional two years.

Also read: Curaleaf and Canopy Growth miss third-quarter analyst marks, while Ascend Wellness and Green Thumb Industries beat forecasts

-Steve Gelsi

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11-10-23 1322ET

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