Cannabis Industry Chart Of The Week: California Takes It On The Chin

The Chart shows the AdvisorShares Pure US Cannabis ETF (blue line) against the S&P 500 (green line) against a basket of California cannabis stocks that includes Harborside, Lowell, Glass House Brands, Grapefruit USA Harborside, Lowell Farms, Next Green Wave, The Parent Company, and Vibe Holdings (orange line).  Each is indexed so that 12/31/20 is represented by 100 on the graph.

The broad cannabis index has underperformed the S&P 500 by approximately 48% YTD.  The S&P 500 is up 20.8% while the MSOs index is down 27.4%

The basket of California focused stocks is down 52% YTD. There are several key factors driving this underperformance: 

Excessive taxes and regulatory red tape.

Too much power in the hands of local bureaucrats resulting in a drastic shortage of retail locations.

A State government that believes the answer is higher taxes!

A thriving illicit market that is not the cause of these problems, but the result.

The major MSOs have side-stepped this morass and have instead concentrated on making nice margins in the limited license Midwestern and Eastern States.  They have been biding their time for a better opportunity to enter California.

We believe we are approaching that time.  Why?  Distress.  Many believe that ½ or more of the independent cultivators in CA will go out of business or be sold at distressed levels. California is on sale,  and the opportunity to scale there presents a long-term opportunity that we believe will prove to be too good to pass up.   

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis and hemp industry. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

Industry Sector (one of 12 sectors, from Cultivation to Brands)

Dollar value of the transaction

Region in which the deal occurred (country or U.S. state)

Status of the company announcing the transaction (Public vs. Private)

Deal structure (equity vs. debt)

Key deal terms (Pricing and Valuation)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

Photo by Javier Hasse.

This article is from one of Benzinga's external contributors. It does not represent the opinion of Benzinga and has not been edited