During the second quarter of 2024, the cannabis sector encountered a familiar set of challenges that have persisted for the past two years, with a lack of reform in both the US and Canada proving to be a significant roadblock to growth in the market.
Companies in the sector continue to move forward and develop their offerings, and with potential catalysts ahead some investors are interested in getting involved. Looking at the key players is often a good place to get started.
Cannabis is federally illegal in the US, but state market openings have allowed some operators to thrive. Typically these firms set up vertically integrated businesses with a focus on branded products, retail networks and licenses.
While these companies have adapted to regulatory challenges, they have much to gain from country-level reform in the US, and are eager to see more welcoming federal laws that will allow their businesses to develop further.
MSOS has increased in value by 13.17 percent year-to-date, reaching US$7.65 as of July 31.
ETF weight: 19.75 percent; market cap: US$2.61 billion; share price: US$4.04
ETF weight: 19.26 percent; market cap: US$1.92 billion; share price: US$10.24
ETF weight: 12.77 percent; market cap: US$1.36 billion; share price: US$3.98
Verano Holdings is a vertically integrated cannabis company. It delivers high-quality products out of its 150 Zen Leaf and MÜV retail locations, which are spread across 14 states.
ETF weight: 5.68 percent; market cap: US$411.38 million; share price: US$1.41
TerrAscend is a vertically integrated MSO with operations in the US and Canada. Its diversified ownership structure is a good representation of the growing interest in the cannabis industry from various sources. TerrAscend has 37 dispensaries in five states, including six medical dispensaries in Pennsylvania and four in Maryland.
TerrAscend also has a strong presence in New Jersey, with retail stores and a state-of-the-art cultivation and production facility. In fact, the Garden State is the company’s most profitable market.
In 2018, Canada became the first G7 nation to legalize adult-use cannabis and create its own streamlined program regulated by both federal and provincial powers. Since then, companies working in the country have faced ups and downs in dealing with tight marketing rules, high tax rates and ongoing competition with the unregulated market.
While HMMJ does not invest in US-based MSOs, it does have exposure to the US market through Canadian companies that have interests in the US cannabis industry. Overall, HMMJ is designed to give investors broad exposure to the cannabis industry, with a particular focus on North American companies.
This ETF had year-to-date gains of 21.89 percent as of July 31 and a price point of US$8.22.
Innovative Industrial Properties is a real estate investment trust that provides specialized real estate opportunities for cannabis companies in 19 states. Its properties mostly consist of processing plants, greenhouses and warehouses, with retail spaces making up a small percentage of its portfolio.
ETF weight: 13.95 percent; market cap: US$941 million; share price: US$2.47
ETF weight: 9.16 percent; market cap: US$1.68 billion; share price: US$2.03
Tilray Brands has a presence in over 20 countries worldwide with a wide range of cannabis products, including edibles, flower and oils.
The bulk of Tilray’s sales lies in the Canadian and international medical cannabis export markets. It has also grown its portfolio of brands in the alcohol segment.
ETF weight: 6.6 percent; market cap: US$612.46 million; share price: US$2.32
SNDL, formerly known as Sundial Growers, is the largest private-sector liquor and cannabis retailer on the Canadian market.
ETF weight: 4 percent; market cap: US$826 million; share price: US$7.88
Canopy Growth is a company that’s grown alongside Canada’s cannabis industry. Founded in 2013, it has become one of the largest producers of cannabis in the world, fostering brand deals with celebrities like Martha Stewart and Snoop Dogg.
“With no material debt maturing until 2026, Canopy is equipped to capitalize on growth opportunities and enhance shareholder value,” said Judy Hong, the company’s chief financial officer, in the release.
Each investor will have to think and act for themselves to manage their own risk exposure, but it’s no secret that cannabis stocks have taken a beating for some time now. While financial experts point to the long-term upside of US operators as more state markets expand, the stock market has not been kind to these names lately.
Cannabis investments are extremely young in the grand scheme of the investment universe. There is an exciting and refreshing element to these stocks, but the market has always been characterized by volatility and unpredictability.
While wild, spontaneous swings in the open market have become less common, cannabis stocks are often moved — both positively and negatively — by big pieces of market news or legalization updates.
Investors may choose to get exposure to the cannabis market as a way to participate in the development of a new drug market with consumer packaged goods capabilities. Some participants are bullish on the industry’s long-term outlook and expect more welcoming laws in the US and across the world to provide upward momentum.
Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
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