The cannabis sector has been experiencing turbulent times, with the MSOS ETF (MSOS) dropping by 15.24% following the DEA’s decision to delay the rescheduling of cannabis until December 2nd. This delay has added to the uncertainty in an already volatile market, particularly as the US approaches a presidential election where candidates have vastly different views on cannabis policy.
Despite the overall market downturn, a few cannabis penny stocks, priced below the cost of a McDonald’s Big Mac, have shown remarkable resilience. According to Viridian Capital Advisors, the broader cannabis sector has a median debt-to-EBITDA ratio of 2.98 times, aligning with thresholds for debt sustainability despite regulatory challenges like the 280e tax code. However, the upper quartile of these companies exhibits leverage ratios considered unsustainable in the long term, indicating that the sector remains financially volatile.
Resilient Players
Several companies have managed to weather the storm through strategic financial management and efficient operations:
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Vext Science (VEXT)
: Despite a slight decrease in stock price to $0.16, Vext Science has demonstrated resilience against market volatility with stable trading volumes. The company reported an 8% decline in revenue year-over-year, but strategic expansions in Ohio and operational efficiencies in Arizona are poised to drive future growth. Vext achieved a positive adjusted EBITDA of $1.08 million in Q2 2024.*
C21 Investments (CXXIF)
: C21 Investments saw its stock price increase by 11.5295% to $0.2399, reflecting strong market dynamics. The company reported a marginal revenue increase of 1% year-over-year to $6.6 million for the quarter ending June 30, 2023, despite inflationary pressures. Despite a net loss of $1.4 million, C21 maintained robust transaction volumes and reported a positive free cash flow of $400,000, indicating solid financial management under challenging conditions.*
IAnthus Capital Holdings (ITHUF)
: While IAnthus Capital Holdings experienced an 8.7838% decrease in stock price to $0.0135, the company continues to showcase financial resilience with improved credit metrics. It reported an 11.1% increase in revenue year-over-year to $43.0 million for the quarter ended June 30, 2024, alongside a gross profit rise to $20.7 million. Despite a substantial net loss of $9.8 million, IAnthus reported a reduction in losses compared to previous periods and an improvement in working capital. As of June 30th, the company held $16.55 million in cash, an increase from $13.10 million at the end of December.Credit Concerns for Other Players
While some companies have thrived, others like TerrAscend (TSNDF), AYR Strategies (AYRWF), and MariMed (MRMD) experienced downgrades in their credit scores. Additionally, firms like Red White & Bloom (RWB), Acreage (ACRDF), and Slang Worldwide (SLNG) reported concerning total liabilities to market cap ratios exceeding 10, typically signaling financial distress. These companies face challenges in managing their debt levels and navigating the current market climate.
The performance of these cannabis penny stocks highlights the importance of strong financial management in an industry that is still evolving and navigating a complex regulatory landscape. While the future of the cannabis industry remains uncertain, the resilience of these companies demonstrates that strategic planning and operational efficiency can lead to success even in challenging market conditions.
