- Especially under present economic difficulties, cannabis businesses make sense because of their potential as a taxable revenue source.
- One aspect that has long plagued the cannabis industry is legal vagaries and any company that can overcome this challenge may lever a massive advantage.
- Still, reputational damage presents a headwind for marijuana stocks, thereby forcing investors to take a cautious approach.
Under normal circumstances, good investment strategies often place a premium on provenance or an established track record for a business seeking capital funding. By logical deduction, cannabis — which has been cultivated by humans for at least 12,000 years, per University of Connecticut research grower Shelley Durocher — should then be a no-brainer investment category. In this context, the forecast calls for clear weather for cannabis specialist Bright Green Corp.
However, nothing is ever clear cut regarding the cannabis industry. Enjoying a colorful history in the U.S., the passage of the 1970 Controlled Substances Act outlawed the use (including for medical purposes) of the much-maligned plant. Though debate rages on the topic, evidence indicates that the draconian stance on marijuana points to certain political motivations — motivations that today many Americans find unpalatable, thus driving proposals for legal reformation.
To be fair, landmark legislation, such as the Agriculture Improvement Act of 2018 (colloquially known as the farm bill) made certain cannabis derivatives — such as the hemp-derived cannabidiol (CBD) — legal in the U.S. However, such products must contain less than 0.3% delta-9-tetrahydrocannabinol (THC), the hallmark psychoactive compound of marijuana. “Full-powered” cannabis itself remains very much illegal federally.
But that’s also where Bright Green is unique among marijuana stocks. As a first mover in the federally licensed cannabis space, it has the opportunity to strike while the iron is hot. Nevertheless, investors must exercise great caution as the green sector is notorious for heart-wrenching volatility.
What Does Bright Green Do?
As its euphemistically titled brand suggests, Bright Green is in the business of marijuana, specifically focused on the research and development of medicinal plant-based therapies. Currently, 35 states have issued mandates legalizing cannabis, which collectively offers a total addressable market of 3.6 million state-legal medical cannabis patients.
Now, the immediate question that arises is this: what makes Bright Green different from all the other marijuana stocks available? The answer comes down to legality. While consumers of pure cannabis products are wholly dependent on their individual state laws, Bright Green is a first mover in the federally licensed cannabis market. Therefore, it could theoretically expand the reach of its solutions to a greater magnitude than its competitors.
Some of the key advantages of Bright Green are listed below:
- Conditional approval: According to Bright Green’s amended Form S-1 disclosure filed with the U.S. Securities and Exchange Commission (SEC), it is one of the few business entities to have “received conditional approval based on already agreed terms from the U.S. Drug Enforcement Administration (DEA) to produce federally legal cannabis.” Additionally, Bright Green has entered into a memorandum of understanding (MOA) with the DEA for the purposes of bulk cannabis manufacturing.
- Expansive potential: Should Bright Green receive full federal recognition for its stated business intentions, the company enjoys significant expansive potential, first through the U.S. market and perhaps later through the international market. According to Grand View Research, by 2030, the global medical marijuana market could command revenue of $65.9 billion, representing a compound annual growth rate (CAGR) of 21.6% from 2022 to the forecasted year.
- Experienced management team: Unlike some fly-by-night operations within the cannabis sector, Bright Green takes its business very seriously. Its core leadership team comprises the full spectrum of corporate experience and acumen, affording the company and its underlying equity stake a level of confidence not seen in some of its rivals.
Finally, Bright Green is constructing a state-of-the-art $300 million complex in Grants, New Mexico, that per its website “will become the nation’s largest federally authorized and most advanced manufacturing and research facilities for plant-based therapies, including cannabis.”
When is the Bright Green IPO Date?
Bright Green Corp IPO’d on May 17, 2022, selling more than 150 million shares at a value of $15.99 per share and closed that day at $25.25 with a valuation of just over $4 billion.
What Analysts are Saying About Bright Green IPO
As a direct listing, pricing data for BGXX stock won’t be available until the free market determines what it will be. Therefore, established market analysts have not yet weighed in on Bright Green’s potential and risk factors. However, ample industry data provides important clues for prospective IPO participants.
First, Bright Green’s federal pathway is enormous. Per its S-1 disclosure, management anticipates that its firm will receive final registration regarding federally sanctioned marijuana research in June 2022. Should the legal process with the DEA move along as planned, Bright Green will command a significant advantage over other U.S. pure cannabis firms, which are limited to strict state-based jurisdictional limitations.
Second, federal approval for the specified scope of Bright Green’s business may open pathways to future financial funding opportunities. Because of the vagaries between federal controls and certain states’ acquiescence, many financial institutions want nothing to do with cannabis-related enterprises. However, Bright Green’s DEA authorization should go a long way to assuaging those fears.
Still, not everything about Bright Green is positively compelling. Recent cannabis research shows that the primary use of the plant in the U.S. remains overwhelmingly recreational, to the tune of 89.5% versus 10.5% solely for medical purposes. Thus, the relevance for BGXX stock could be more limited than its underlying marketing literature implies.
Moreover, the reputation for marijuana stocks as an investment class is poor. For instance, the AdvisorShares Pure US Cannabis ETF (NYSEARCA: MSOS) is down a staggering 65% in the trailing year (May 18, 2021 to May 16, 2022). People have a long memory about their financial losses, which means interest could be lacking for Bright Green’s DPO.
Bright Green Financial History
Like many other aspirational IPOs, Bright Green is a pre-revenue firm, generating zero sales for 2021 and the prior year. However, it does have net losses to the tune of $2.49 million in 2021 and $3 million in 2020.
However, a noteworthy positive is its balance sheet. As of the end of 2021, Bright Green posted a total asset count of $8.78 million compared to total liabilities of only $560,156.
Bright Green Potential
While the likely federal approval of Bright Green’s cannabis enterprise will be a landmark achievement, the company has to parlay that success with meaningful momentum. This area is where the public market separates the contenders from the pretenders.
At this juncture, cannabis investors must consider the possible threat of the black market. With inflation reaching ridiculous levels and law enforcement inundated with more pressing concerns, the temptation of illicitly sourced (and cheaper) cannabis may be too much for many users to ignore.
Unlike a traditional bread-and-butter IPO, BGXX stock will enter the market via a special category called a direct public offering (DPO) or better known as a direct listing. The basic concept between an IPO and DPO is the same: enable retail (public) investors to acquire shares of a previously privately held enterprise. But how it goes about the process is different.
Though the pros and cons of each format goes beyond the scope of this article, an IPO provides price stability in that underwriters negotiate terms before the newly listed company goes public. However, costs to the listing company can be steep because one, it must recruit the services of investment banks and two, underwriters typically sell shares to the public at a discount to their intrinsic value to attract the most hype.
On the other hand, a DPO does not involve the issuance of new shares for the proceeding. Instead, this type of listing depends entirely on the availability of stock from current employees and investors. Therefore, if none of these entities want to sell their shares, a transaction will not occur. Logically, then, a DPO’s valuation is tied directly to free market forces, which could offer a favorable outcome for the listing company.
However, from time to time, the market can act irrationally. As well, especially during these unusual circumstances, Wall Street can be volatile. Therefore, it might be better for a company like Bright Green to negotiate ahead of time with underwriters via a traditional IPO.
For the retail investor, BGXX stock provides an interesting risk-reward profile. Since you would be acquiring already existing shares, you might end up receiving a fair market price since pure demand would drive the new listing. At the same time, institutional investors have not had the time to perform a price discovery process, meaning that you would not be working with an established benchmark to judge fair value.
Where to Buy Bright Green Stock
If you want to participate in Bright Green’s growth, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of best brokers to consider.
Frequently Asked Questions
Are cannabis stocks legal?
Yes, cannabis stocks are legal to trade, but you should ensure that cannabis products are legal for you to own or transport in your state of residence or wherever you are traveling.
Are cannabis stocks a good investment?
Yes, cannabis stocks are a good investment that can help you diversify your portfolio, but you should monitor the sector carefully because rules and regulations change frequently, impacting the profitability of many of these corporations.