Investors Show Bullish Sentiment on Cannabis
ATB Capital Markets has released the results of its first Cannabis Sentiment Survey which reveals bullish sentiment from investors, but cautious capital allocation.
The report revealed that investors are more bullish compared to six months ago, and that MSOs are expected to outperform the S&P 500 over the next year.
According to ATB, the developments on cannabis rescheduling in the country has driven the change in sentiment, with investors expecting the rescheduling to go ahead with in the next two years.
ATB states: “However, this bullishness has not translated into material net inflows; most reported no change or decreased exposure to MSOs over the past six months, which suggests that investors have been burned enough by regulatory false starts and are waiting for an actual re-scheduling recommendation from the DEA.”
Further developments that are driving bullish sentiment include the possibility of key states legalising recreational cannabis, and that the sector “could be at or nearing the bottom of a pricing cycle.”
However, the report highlights that investors are 50/50 on whether or not SAFE Banking will go ahead – causing uncertainty.
In Canada, the report reveals that investors remain bearish on Canadian LPs and retailers.
“While in the US sentiment is driven by regulations, in Canada fundamentals are the biggest driver: poor operating results and shareholder dilution were cited as reasons for investors’ negative view,” states ATB.
“We are not surprised by this negative sentiment given the recent underperformance, but this could be a contrarian indicator.”
ATB’s macro thesis for the past year is that “retailers offer the best opportunity as brick-and-mortar margins are expanding in a consolidating market”, but the company stated that it believes opportunities exist among LPs.
