Cannabis stocks are notoriously volatile, but it looks as if they might finally be rewarded for good performance. Some big-name MSOs clocked solid results in the latest earnings cycle, and valuations responded.
Viridian Capital Advisors recently compared the big cannabis operators that beat revenue and EBITDA estimates to the stock price response. “The market reacted rationally to the EBITDA beats with a statistically significant 0.75 correlation between EBITDA surprises and stock performance.” the financial firm wrote.
Winners
Take Green Thumb Green Thumb Industries (CSE: GTII) (OTCQX: GTBIF). Green Market Report wrote that its revenue rose to $278 million in the fourth quarter due to higher sales in Maryland. That figure beat Yahoo Finance’s average analyst estimate for revenues of $269 million.
While the stock did dip following earnings to $12.55, it has since popped back to $13.52, up 7.7%, and it’s inching closer to its 52-week high of $14.30.
Viridian also highlighted Trulieve Cannabis Corp. (OTCQX: TCNNF), whose revenue fell in the fourth quarter but still beat expectations. The company also beat EBITDA estimates by 22.3%.
Trulieve’s stock closed at $9.68 after the earnings announcement and was lately selling at $11.90 – a 22% increase.
Participants
Viridian also looked at some that didn’t. The report pointed out that The Cannabist Co. (OTC: CBSTF) missed consensus EBITDA estimates by approximately 38%, blaming the shortfall on a roughly 5% margin contraction from discounts taken to reduce excess inventories.
The day before the earnings release, Cannabist’s stock closed at 25 cents and is now lately selling at 26 cents, a 4% increase. So, while the stock did get a lift, it was lower than the others with better performance.
“Analysts revised their 2024 EBITDA estimates for the group downward by approximately 1%, virtually all related to lower revenue growth,” Viridian wrote of the New York-based company.
Despite that, Viridian believes there is solid potential for higher revenue growth and additional margin expansion. Analyst Frank Colombo posited that the analysts might be too conservative now.
Momentum
Viridian could be seeing something outside analysts don’t: momentum. With new markets continuing to add up and rescheduling optimism getting stronger, cannabis stocks could be setting up for a bull run.
Pricing pressures have moderated, Ohio is now in play, New York is slowly adding stores, and companies have become leaner.
Charles Schwab’s trend analysis for the AdvisorShares Pure U.S. Cannabis ETF (MSOS) noted that the ETF’s “200-day moving average is upwards sloping and the MACD histogram is above 0 and rising.”
It also noted that investors are paying higher prices as they begin to buy, and training volumes have risen as well in the last two weeks.
As the Schedule III rumors continue unabated online, more people believe that it might really happen. However, it seems the biggest rewards are going to the winners, while the participants will get only see a mild buzz in valuations.
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