Is There a Buying Opportunity in Cannabis Stocks?

US companies continue to show superior numbers, expert says

The financial expert pointed to the year-over-year growth seen from US operators and their businesses in the country, despite the lack of federal legalization and more welcoming banking rules.

“Multi-state operators (MSOs) (are) very undervalued, and they have very strong fundamentals,” Taerk said.

“The total addressable market in the US continues to grow, with a number of different state markets opening both to medical and recreational markets, and (MSOs are) trading at five times EBITDA,” he continued, referring to earnings before interest, taxes, depreciation and amortization. “This is where investors should be, or portfolio managers in the space are table pounding.”

Little competition for "generational" investment opportunity

Taerk explained to INN that he thinks the biggest opportunity available for investors right now can be found in the lack of competition when it comes to investment dollars.

“What I mean by that is US institutions aren't investing yet, so you're able to get ahead of the large institutional blocks that will come once it's federally legal. You're getting a lower valuation,” he said.

“Yes, there's less liquidity,” the financial expert admitted, “but you're getting at a generational buying opportunity.”

Misunderstandings affecting MSO valuation despite positive stats

Taerk’s comments center on what has been a trend in the cannabis stock market for years now — a lack of appreciation for the growing position of US cannabis companies.

The current slashing of momentum for US players continues to relate back to misunderstandings in the market, and investors' desire to wait for meaningful regulatory changes in the country, Taerk said.

“A lot of investors tend to say, ‘Well, without federal legislative changes ... I'm not interested,’ but you miss the growth that's taking place at the state level,” the financial expert told INN.

Earlier this month, cannabis research firm New Frontier Data issued a new report indicating that sales from legal markets in the US will surpass US$72 billion by 2030.

The projection is based on the expectation that nine states will fulfill promises to legalize medical cannabis programs, while an additional nine could have adult programs by the year 2030.

The bigger investors that Taerk said are not yet participating to their full extent include consumer goods companies, as well as tobacco and alcohol players.

Although both tobacco and alcohol companies have made investments in Canadian cannabis companies, these have been mixed in terms of results and direct involvement from the larger companies.

“The longer the MSOs are allowed to continue to build their businesses, they are effectively strengthening their moat around the businesses,” Taerk said. "To the point when legalization happens, there's going to be acquisitions at much higher prices. And this is why investors want to be investing now.”

Investor takeaway

The US cannabis marketplace continues to offer a growth opportunity, according to experts like Taerk, but it has been hit by confusing policies and a lack of sensible business policy.

Those who are prepared to face those challenges and take a long-term view of the American marketplace may be able to weather the storm in the cannabis industry at large.