U.S Cannabis Sales Surging – Why Aren’t Shares Responding?

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Second-quarter earnings season is almost over. The big winner? The U.S. cannabis industry.

Some of the largest U.S. cannabis companies just reported another quarter of incredible sales growth. In fact, I don’t know of any other sector that is growing this fast. Here is a list of the best reports.

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  • Ascend Wellness (OTC: AAWH) revenue was up 236% from last year.
  • Curaleaf Holdings (OTC: CURLF) revenue was up 166% from last year.
  • Green Thumb Industries (OTC: GTBIF) revenue was up 85% from last year.
  • Harvest Health and Recreation (OTC: HRVSF) revenue was up 84% from last year.

With these kinds of results, you would think shares would be surging. However, the cannabis sector remains trapped in a bear market.

The Advisor Shares US Cannabis ETF (MSOS) is down 35% from the 52-week high.

12-Month Chart Advisor Shares US Cannabis ETF (MSOS)

Naturally, investors want to know why the sector is down when the industry is clearly thriving. Below are three reasons for the recent pullback, and also a forecast on what to expect next.

3 Factors Weighing on Cannabis Stocks

Cannabis Stocks Still Digesting Gains From 2020

The cannabis sector saw an enormous rally in 2020. For example, Green Thumb Industries (GTBIF), one of the largest cannabis companies, saw its share price jump more than 1,000 from the 52-week low in 2020. Today, Green Thumb is down 20% from the 52-week low, but shares are still up more than 600% since the COVID low from March of 2020.

When a sector rallies this much in a short amount of time, it’s natural for shares to take a breather and reset before launching a new rally. We think this is the phase the cannabis sector is in right now.

The Market Is Disappointed in Pace of Cannabis Reform

When the Democrats took the White House and Congress, cannabis stocks surged because investors were expecting big-time reform. However, very little has happened so far.

Chuck Schumer introduced a federal cannabis bill that was dead on arrival because of its high tax rate. The SAFE Banking Act, a bill that would loosen cannabis banking laws, passed the House in April for the fourth time but remains stuck in the Senate.

Further out, I still expect to see significant cannabis reform in the next 12-24 months. For the time being, the market is disappointed that it isn’t happening faster.

Cannabis Stocks Trade In Cycles

The cannabis sector has a clear history of trading in bullish and bearish cycles. These cycles have historically lasted anywhere from three to twelve months.

Cannabis stocks saw big gains in 2020 and this is the part of the cycle where the sector resets. As it stands, cannabis stocks have been trapped in a bear market for the last six months. This tells us that the sector is much closer to the bottom of this bear market than the top.

What Should We Expect Moving Forward?

I remain extremely optimistic about the broader U.S. cannabis sector and specifically the largest companies in the industry such as Curaleaf Holdings (CURLF), Green Thumb Industries (GTBIF), and Cresco Labs (CRLBF).

The industry is delivering incredible sales growth right now despite massive legal and regulatory constraints.

Looking forward, I expect the sector to benefit from powerful catalysts such as federal cannabis reform, more states going legal, and more revenue growth. I view this bear market as an opportunity to buy low while the sector is battling short-term headwinds.

About the Author & Cannabis Stock Trades

Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.

Mr. Vodicka brings his expertise and guidance to the members of Cannabis Stock Trades.

Join Cannabis Stock Trades for Mr. Vodicka’s exclusive analysis, trade alerts, and model portfolio.

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