Why Are Cannabis Stocks Down? Cantor Fitzgerald Explains Impacts Of Draft Bill & Advises: 'Use The Weakness' To Buy Curaleaf, Green Thumb, Trulieve And Cresco

Wednesday was a historic day for the marijuana industry with the unveiling of the highly-anticipated Senate bill that would federally legalize cannabis

Details of the draft bill, the Cannabis Administration and Opportunity Act, were released early morning sparking excitement and speculation. Around mid-day, the bill's sponsors Senate Majority Leader Chuck Schumer (D-N.Y.) and Sens. Cory Booker (D-N.J.) and Ron Wyden (D-Ore.) held a press conference.

While the impact was expected to be felt on cannabis stocks, surprisingly marijuana stocks fell. 

Cantor Fitzgerald’s Pablo Zuanic offered several possible explanations for this reaction in his latest analyst note, while also emphasizing that investors should “make use of yesterday’s weakness.” There's an upside, claims Zuanic who recognized that Wednesday was a historic day for the industry despite the decline of cannabis stocks.

For starters, the Canadian Marijuana Index fell 5.3% for the day, the US Marijuana Index dropped 2.8%, the AdvisorShares Trust AdvisorShares Pure US Cannabis ETF (ARCA: MSOS) lost 3.5%, and AdvisorShares Pure Cannabis ETF (ARCA: YOLO) was down 4.3%. All this while the SPDR S&P 500 (ARCA: SPY) was flat (+0.1%). 

Why Did Cannabis Stocks Drop?

According to Zuanic, there are several reasons that could explain these market actions:

  • An ambitious plan – more of an all-out approach instead of a gradual one;
  • Sen. Schumer’s acknowledgment that the current draft may not garner enough votes to pass in the Senate;
  • Sen. Booker’s strong opposition to separate banking reform;
  • White House Press Secretary Jen Psaki revealing that President Biden prefers incremental decriminalization and has not endorsed this marijuana draft bill;
  • Several troublesome parts of the draft like the notion of interstate trade and a 25% marijuana federal sales tax.

There are several potential areas of compromise, according to Zuanic, and those include – lowering the 10-pound possession limit; do not allow interstate trade for the first few years; implement the 25% federal tax over 10 years instead of the proposed five; leave expungement to the states; set a limit on the funds for the “opportunity programs.”

Use The Weakens But Choose Wisely 

With a certain amount of ambivalence around many aspects of the bill, particularly regarding banking reform, Zuanic advised investors to carefully pick multistate cannabis operators to invest in. Cantor’s top US picks remain Curaleaf  Holdings CURLFGreen Thumb Industries Inc GTBIF (CSE: GTII), Trulieve Cannabis TCNNF and Cresco Labs CRLBF

The analyst further noted that investors should avoid “companies lacking state level depth; financially stretched; with high share-based cops to sales ratios; more focused on complaining about their valuations than running their businesses; those in bed with predatory lending entities.”

“Again, make use of Wednesday's weakness - selectively, in our view.”

Photo: Courtesy of Rick Proctor on Unsplash

Market News and Data brought to you by Benzinga APIs
Price Target
Posted In: Analyst ColorCannabisNewsMarketsAnalyst RatingsBidencannabis legalization billCantor FitzgeraldChuck SchumerCory BookerPablo ZuanicRon Wyden
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

The Benzinga Cannabis Capital Conference is coming to Florida

The Benzinga Cannabis Capital Conference is returning to Florida, in a new venue in Hollywood, on April 16 and 17, 2024. The two-day event at The Diplomat Beach Resort will be a chance for entrepreneurs, both large and small, to network, learn and grow. Renowned for its trendsetting abilities and influence on the future of cannabis, mark your calendars – this conference is the go-to event of the year for the cannabis world.

Get your tickets now on bzcannabis.com – Prices will increase very soon!