The onset of 2024 brought a delightful sight to the eyes of cannabis investors – a glimmering green reflection on their screens, signifying a bullish surge in cannabis stocks. Water Tower Research (WTR) has meticulously captured this momentum in its latest report. The report offers a succinct overview of the monumental gains and emerging trends that are reshaping the cannabis market and the potential future of cannabis investments.
Unprecedented Rise in Cannabis Stocks
The cannabis market witnessed an unprecedented upswing right at the beginning of 2024. The US cannabis MSOS ETF soared by 13.12%, and the global YOLO ETF experienced a substantial 9.11% increase. A substantial portion of this growth is attributed to the positive market sentiment driven by the potential reclassification of cannabis by the DEA, in line with a recommendation put forth by the Department of Health and Human Services.
This reclassification could potentially eliminate the draconian 280E tax code that currently burdens US-based plant-touching operators, thereby significantly bolstering the industry.
Standout Performers
A select few companies displayed exceptional performance during this remarkable rally. Jushi (JUSH) and Jushi (JUSHF) experienced a staggering surge of 34.78%. The Cannabist (CBST) and Cresco (CL) witnessed gains of 34.50% and 32.03% respectively. AYR (AYR) also basked in a significant rise of 23.89%.
Steady Growth Among Cash Flow Generators
Companies with less leverage that generated consistent cash flow exhibited more modest gains. Green Thumb Industries (GTII) rose by 5.40%, Verano (VRNO) by 8.93%, and MariMed (MRMD) saw a 1.89% increase.
Impact Of DEA’s Review
The rally of the week was further fueled by the news of the ongoing review of cannabis as a Schedule I drug by the DEA, particularly after the HHS recommended rescheduling to Schedule III in late August.
Jesse Redmond, WTR’s managing director for the cannabis sector, elucidated, “US cannabis continues to outperform Canadian and other global names due to the positive sentiment driven by the potential for the DEA to agree with the HHS’s Schedule III recommendation. This would eradicate 280E, the onerous tax code that applies to plant-touching US operators.”
Notable Earnings Report
WTR’s report also highlighted that Agrify (AGFY) reported a 4.98% gain this week, with a significant shift in their financials. Their year-over-year revenue decreased from $7.0 million to $3.1 million, but the gross profit turned around from a $4.1 million loss to a $1.0 million gain. A reduction in operating expenses from $27.4 million to $5.6 million, primarily due to lower general and administrative costs, contributed to this improvement.
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