It’s been quite a rut. The shares of Curaleaf Holdings, Green Thumb Industries and Trulieve Cannabis have plummeted more than 30% this year — much worse than the declines posted by benchmark indexes such as the S&P 500 and Dow Jones Industrial Average. Much of cannabis companies’ slide is due to the failure of reforms that investors had hoped for to materialize so far under U.S. President Joe Biden.
BTIG analyst Camilo Lyon calls it a “regulatory recession,” given that the stocks still trade at low multiples to their earnings, and many companies have seen growth rates of 60%.
“If there were any doubt about the demand profile for the category, one only needed to visit an adult-use dispensary this past weekend in New Jersey to see hourlong lines of people waiting to buy legal cannabis,” Lyon said in an April 26 research note. “Cannabis, with its many federal and state regulatory restrictions still in place, has been driven into recession by slow-moving policy changes.”
He’s optimistic, however, that this may end soon. Lyon cited the prospects for the SAFE Banking Act, which would allow financial institutions to offer banking services to legal cannabis businesses without penalties from federal regulators, and President Biden’s recent commutation of 75 sentences for individuals serving nonviolent drug offenses. He also mentioned expected upcoming legalizations in a new round of states including New York, Maryland and Pennsylvania.