Cannabis stocks have taken a beating in the second quarter, so investors are hoping that valuations will recover in the back half of the year. In exclusive comments to Green Market Report, Jason Wilson, cannabis banking and research expert at ETFMG (NYSE: MJ), which issues the ETFMG Alternative Harvest exchange-traded fund, has given his opinion about the industry for the rest of 2021. The comments are overwhelmingly positive. Despite the downturn in stock valuations, the MJ cannabis ETF has seen a return for the first six months of 2021 that has exceeded 40%.
“Several factors have been driving cannabis sales over the last few years: the size of the total addressable market has expanded as more states and countries move to legalize cannabis; the number of consumers has increased in existing markets as canna-curious customers transition to cannabis products, and transaction volume among existing customers in established markets has increased as the number of dispensaries has grown and buying experiences have improved,” said Wilson. He noted that the market has been expanding at a rate of 30% every year.
“There has been some speculation that the recent growth in the cannabis market has been fuelled by the pandemic, leading some to suggest that 2021 might not experience the sales growth of years past, but so far, as the economy starts to recover and emerge from COVID-19, the trend of strong sales growth has continued in 2021. In the U.S., mature markets such as Colorado, Oregon, and Washington state are averaging 26% year-over-year sales growth while newer markets such as Illinois, Massachusetts, Michigan and Pennsylvania are averaging 136% year-over-year sales growth. The story has been similar in Canada where 2021 Q1 sales exceeded 2020 Q1 sales by approximately 70%,” he added.
There are many positive catalysts to support continued growth. While 18 states have legalized the sale of adult-use cannabis, the actual sale of recreational cannabis has only begun in 11 states. New Jersey could begin sales in 2021, while New York is slated to begin sales in April 2022. These are expected to be two of the largest markets in the industry. In addition to these two, New Mexico is on deck to begin its adult-use sales in April 2022 as well.
The industry has managed to persevere even though it has been subjected to numerous hurdles like a lack of banking and credit card processing, unfair taxation and sometimes expensive capital. Wilson though believes that with voter support for federal legalization initiatives at an all-time high, combined with the positive economic impact cannabis legalization would provide through job creation and increased tax revenues (it has been estimated that the total U.S. economic impact will reach $92 billion in 2021), it is widely anticipated that the current administration will have enough momentum to pass federal legislation that provides meaningful cannabis reform.
He concluded, “So while the current challenges and headwinds have created significant volatility for investors to date, it appears that the catalysts remain in place for the domestic and global cannabis markets to continue to expand at a significant pace for the foreseeable future.”