MW Cannabis sector limps into 2025 because 'the gold rush is over'
By Steve Gelsi
Federal moves on cannabis reform may not happen until 2026, one expert says
Investors owning cannabis stocks will no doubt hope for a reversal of fortunes in 2025 after a year of bruising losses in equity prices tied to the business of legalized marijuana in the U.S.
With just a few trading days left in 2024, the AdvisorShares Pure US Cannabis ETF MSOS is down 48% for the year.
Among the larger U.S. and Canadian operators, Curaleaf Holdings (CURLF) has fallen about 62% this year, while Verano Holdings (VRNOF) is down about 73%, Trulieve (TCNNF) has fallen about 7.5%, Green Thumb Industries (GTBIF) is down 31% and Cresco Labs (CRLBF) has lost about 37% of its value.
TerrAscend (TSNDF) is down by 62% in 2024, while Ascend Wellness (AAWH) has dropped 64%.
Canopy Growth $(CGC.AU)$ has fallen 45% and Tilray Brands $(TLRY)$ has subtracted about 37%. One exception was Canada's OrganiGram $(OGI)$ , which has risen more than 20% this year.
It's gotten so bad that one cannabis company, Weedmaps $(MAPS)$, is planning to take itself private.
The stock price losses came as the sector looks toward challenges on both the state and federal level in the U.S.
Among the headwinds, the incoming GOP-led Congress doesn't appear thus far to have any cannabis reform at the top of its list.
And the U.S. Drug Enforcement Administration's review of the reclassification of cannabis to a less dangerous level may take until 2026 or longer, one lawyer active in the pot space told MarketWatch.
Also read: Cannabis stocks drop sharply as DEA sets drug-rescheduling hearing after November election
While President-elect Donald Trump voiced support for a measure in Florida to legalize adult-use cannabis, the referendum fell short of the 60% vote it needed to pass.
Similar measures in South Dakota and North Dakota also failed, although a medical program won an OK in Nebraska.
While the cannabis sector has often looked to expansion on a state-by-state basis, no major states are poised to launch new medical or recreational pot programs after Nebraska.
Pennsylvania remains in limbo. Although Gov. Josh Shapiro has endorsed cannabis adult use, it would need approval from both houses of the state legislature to move forward. That's proven to be difficult in the past.
Adult-use cannabis in Florida is off the table for now due to the loss of Proposition 3, the referendum that would have allowed retail sales of marijuana in the Sunshine state, even though Trump said he had planned to vote for it.
Elected state officials in Hawaii and New Hampshire have been working on bills to allow adult use of cannabis, but outcomes remain uncertain.
Other big states such as Texas don't seem likely to move in that direction either, and Oklahoma voters turned down an adult-use cannabis program in 2023.
At last check, 38 out of 50 U.S. states have some form of medical marijuana, while 24 support adult-use programs, as the GOP takes control of the U.S. House of Representatives, the U.S. Senate and the White House in 2025.
Charles Gormally, a Brach Eichler LLP member who specializes in cannabis law, said most middle-of-the-country Republicans in Congress are not particularly bullish on cannabis reform.
"They don't embrace it," he said. "That's the core Republican message to stamp down on further liberalization of drug policy."
If that approach continues under House Speaker Mike Johnson and Senate Majority Leader John Thune, it's unlikely the SAFER Banking measure to open up the financial system to legal cannabis companies would be voted into law. The measure has won a favorable vote in the U.S. House of Representatives seven times in the past decade, but has never reached a full Senate vote.
On the plus side, Trump could end up including cannabis in his overall approach of deregulation and letting the states decide the outcome because it would be "good for business," Gormally said.
Trump's pick of Robert F. Kennedy Jr. for secretary of Health and Human Services could prove to be a boost to re-scheduling cannabis or even removing it entirely from the Controlled Substances Act, some cannabis insiders said.
Either way, the outcome for cannabis in 2025 remains uncertain and major regulatory moves may not take place on the federal level.
As a lawyer who follows federal law around marijuana legalization, Gormally said previous estimates that the DEA would re-schedule cannabis in 2024 proved to be overly optimistic.
The process could take another year or more for public comment and potential litigation around it, he said.
While cannabis companies have few options for new states, they continue to grow in markets where they're already active.
New York State, for example, is expected to reach the $1 billion in sales mark this year as officials crack down on illegal pot shops and license new stores to open.
Lauren Fontein, co-founder and compliance chief at The Artist Tree, said the number of retailers in more mature markets such as California may decline in 2025 in the face of a drop in average order values, persistent illicit operators, and taxation.
"We'll likely see more companies entering receivership, as we've seen throughout 2024, allowing the legal market to correct itself from the oversupply of retail outlets that currently exists in many California cities," Fontein said in a prepared statement. "Hopefully we will also see communities that have been apprehensive about cannabis, slowly move toward licensing retail locations, as more seniors and middle aged consumers embrace cannabis for both health applications and as an acceptable social alternative to alcohol."
Mike Khemmoro, operating chief at Mango Cannabis, said the sector may see some growth from incremental changes such as potential consumption lounges in Michigan and New Mexico but there will be a greater emphasis on building up scale through mergers.
"The gold rush is over," Khemmor said in an email to MarketWatch. "Companies unable to scale or maintain profitability will face acquisition or closure."
-Steve Gelsi
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(END) Dow Jones Newswires
December 27, 2024 08:38 ET (13:38 GMT)
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