SAFE Act Gave Stocks a Slight High, Earnings Harshed That Buzz

Just the whiff of federal banking legislation was enough for cannabis stocks.

Just the whiff of a potential piece of federal banking legislation was enough for cannabis stocks to get a boost. In the run up to the Senate Banking Committee hearing last week, the MSOS ETF started at 5.75  at the beginning of May and jumped to 6.26 on May 8.

“We believe the SAFE Act would eventually lead to uplistings and greater trading liquidity, which would have tangible benefits, particularly for larger MSOs,” wrote Viridian Capital Advisors about the possibility of federal action. “Major banks are unlikely to storm into the market on the lending side, given the cash flow challenges poised by 280E and wholesale price compression. At the margin, lending may loosen, but this needs to be viewed against the backdrop of general credit contraction, an upcoming recession, and high drama regarding the debt ceiling.”

Some companies enjoyed power hits in stock prices, with Jushi Holdings (OTC: JUSHF), Ascend Wellness (OTC: AAWH), Glass House Brands (OTC: GLASF), and MariMed (OTC: MRMD) all registering greater than 20% gains for the week ended May 5.

Viridian went on to note that Unrivaled Brands (OTC: UNRV) rose 66.7% on the week to become the best YTD performer on its list, based on the successful closing of a settlement that extinguished an aggregate of $4.5 million of liabilities in exchange for $1.25 million of long maturity unsecured notes.

Goodness Growth (OTC: GDNS) was the week’s biggest gainer, up 78% on closing the first tranche of a $10 million convertible note facility.

Earnings Bite

Unfortunately, the buzz wore off as earnings season gave way to reality, and several big names reported revenues slid in the first quarter. For example, Jushi saw its shares hit a 52-week low near the end of April, selling at 41 cents per share. It popped to 64 cents by May 5 on SAFE hopes, only to give it back after reporting that sales dropped in the first quarter, lately selling at 46 cents a share.

It seemed that the companies that did manage to increase sales in the first quarter only did so by small amounts.

Viridian thinks that real share price improvements will need to see real sales improvements because psychological boosts from SAFE don’t seem to last.

The next step for the legislation is to go through a markup period followed by a potential floor vote. Senate Majority Leader Chuck Schumer said he had hoped that the process would move quickly. Unfortunately, a recent piece of bipartisan legislation that wanted to require studies into the medical potential of cannabis for military veterans with chronic pain and PTSD was shot down by Republicans.

That doesn’t bode well for cannabis banking.

Still after two years of a continuous cannabis stock selloff, even a short bull run was a welcome respite for many investors.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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