This cannabis stock just made history
Is this the industry's watershed moment, or is this just a one-off exception?
The marijuana industry still isn't legal in the U.S. even though dozens of states permit marijuana for either recreational or medical use. There are even many marijuana companies that trade on the stock exchanges that you can invest in today to gain exposure to the fast-growing industry.
However, not all marijuana companies can trade on the NYSE or Nasdaq. Specifically, plant-touching marijuana companies based in the U.S. aren't able to do so because they operate in violation of federal laws. But in May, one stock became an exception to the rule and made history.
Bright Green Corporation began trading on the Nasdaq on May 17
Bright Green (BGXX 1.70%) is a Florida-based cannabis business that the federal government has approved to grow cannabis for limited purposes, including for use in plant-based therapies. The company notes on its website that, "domestic sales of cannabis products will be made only via bona fide supply agreements with authorized DEA registrants, and not directly to consumers."
The company is a start-up, and it has generated no revenue in either of the past two years. In 2021, its operating expenses totaled $2.5 million. Bright Green also reported having a cash balance of $1.3 million as of the end of last year.
Given the company's uncertain future (e.g. how many customers it may potentially obtain through its strict business model), it may not be surprising that the fanfare surrounding the stock in its initial few days has quickly vanished.
It took less than two weeks for the stock to crash
Hype and excitement surrounding the stock were strong in Bright Green's first few days. After closing at more than $25 on day one, the new pot stock would more than double in value to an intraday high of $58 on day two. But last week, the stock was already down 89% from that high, closing at just $6.18 -- after only its ninth trading day.
Cannabis investors were likely excited by the initial news of a U.S. plant-touching marijuana stock finally hitting a major U.S. exchange more than anything. Although there are plant-touching businesses such as Tilray Brands and Canopy Growth on the Nasdaq, they are based in Canada (where marijuana is legal federally), and they can't enter the much larger U.S. marijuana market.
The reality likely set in on Bright Green's investors shortly afterward: The tightly controlled business probably won't generate much revenue, as its pool of potential buyers is going to be fairly narrow. While there is potential in the pharmaceutical industry to get involved with cannabis, thus far there hasn't been much interest there. The most notable move to date was Jazz Pharmaceutical's $7.2 billion acquisition of medical marijuana company G.W. Pharmaceuticals last year.
Bright Green's entrance onto the stock market is historical, but it's not going to be a game-changer, nor will it become the industry's hottest new stock.
Investors are better off going with multi-state operators
If you want to set yourself up for some long-term gains from investing in the marijuana market, your best bet is to go with one of the large multi-state operators in the country today. Trulieve Cannabis and Curaleaf Holdings have dominant positions in several states and both have generated more than $1 billion in revenue over the past 12 months.
While they can't list on major U.S. exchanges, their shares could take off once it's possible to do so. The caveat there is that that probably won't happen until the U.S. legalizes marijuana federally, which could still be years away from becoming a reality. For investors who buy and hold, however, those stocks will present much more promising investment opportunities over the long haul than Bright Green will.
