The cannabis market is in a state of flux following the 2024 elections. Investor confidence has taken a hit, driven by a combination of political uncertainty and the disappointing outcome of Florida’s adult-use cannabis legalization vote. This has resulted in significant selloffs across top U.S. and Canadian cannabis stocks.
Market Meltdown: Was the Sell-Off Justified?
The failure of the Florida ballot initiative, alongside similar defeats in North Dakota and South Dakota, has cast a shadow over the industry’s growth trajectory. Following the Florida vote, the market cap of 31 publicly traded cannabis companies plummeted by $2.6 billion between November 1st and November 6th. This decline is particularly noteworthy considering Florida’s medical cannabis market is projected to reach $2.1 billion in sales by 2024. Had adult-use legalization passed, it could have potentially doubled these sales, adding another $2.1 billion to the market.
While the initial reaction might seem excessive, analysts from Viridian Capital Advisors argue that the selloff wasn’t entirely unfounded. They point out that applying a conservative 30% EBITDA margin to the potential additional sales generated by full legalization in Florida would result in a $630 million EBITDA loss. Using a conservative 5x multiple, this translates to a projected decline in market cap of approximately $3.15 billion. This suggests that the $2.6 billion markdown might not be as dramatic as it appears.
However, it’s important to acknowledge that not all companies listed have operations in Florida. Nevertheless, a substantial 81% of the market cap is held by firms actively operating in the state. The broader impact on the industry’s growth narrative is a greater concern.
Earnings Reports Add to Pessimism
In addition to the disappointing ballot results, earnings reports from key players like Trulieve, TerrAscend, Curaleaf, Cannabist, and GTI have added to the market’s anxieties. These reports revealed significant misses, even against lowered expectations. Aggregate revenues for these companies are projected to be down 0.4% year-over-year and 1.1% sequentially. The decline in EBITDA is even more pronounced, at 2.2% year-over-year and 4.2% sequentially.
The failed vote has undeniably extended the industry’s timeline for significant growth, leaving investors to carefully weigh potential future catalysts against the stark realities of the current market.
As the cannabis industry navigates this turbulent period, it’s crucial for investors to stay informed and assess the long-term potential of the market amidst the current volatility.