Cannabis companies may be reporting record sales in some cases, but investors wouldn’t think that based on the stock prices. The fourth quarter was challenging for a number of reasons ranging from a fast expansion of stores in some provinces in Canada, disappointments in legislation for new cannabis states, and overwhelming debt clouding some company outlooks. In addition, there were companies reporting slowing sequential sales and that was enough to cause many investors to throw in the towel. You can read the entire report here.
The Green Market Report Cannabis Company Index dropped another 29% during the fourth quarter as it seemed once again every company except for two experienced a sharp decline in share valuations. In previous quarters, the cannabis industry seemed to mirror the broader market, but those days are over. The S&P 500 turned in a fourth-quarter performance that rose 10.65% and the Russell 3000 had a return of 9.3%.
Overall, the Green Market Report Cannabis Company Index fell by 27% in 2021. By comparison, the North American Marijuana Index fell by 25% for 2021. Looking at the full year, the S&P 500 rose 26.89% in 2021 and this was its third straight positive year. The Dow and Nasdaq also joined the party with returns of 18.73% and 21.39% for the year and three years of positive returns. Investors would have been better off avoiding the cannabis stocks for the past year.
Changes To The Index
The Index made the following changes at the end of the fourth quarter. Hexo is being removed from the Index as the company has stated it is having problems meeting its debt obligations. After two quarters in a row of poor performance, it’s time to release this one into the wild. Taking its place is Glass House Brands (OTC: GLASF) with a market cap of $220 million.
The company recently acquired CBD company Plus Products for a song. The company’s CEO Kyle Kazan has expressed his desire to continue lowering the cost to cultivate cannabis in an increasingly competitive landscape. He recently said, “We have a planned total footprint of 6 million square feet and projected total biomass production of approximately 1.7 million pounds, which we believe would make Glass House Brands the largest and most efficient cannabis supplier in the U.S., by a wide margin. With this significant capacity, we will be extremely well-positioned to supply cannabis consumers across the country once that opportunity arises.” Glass House also completed the acquisition of the approximately 160-acre SoCal Facility with six on-site greenhouses in September 2021.
The company’s brands include the namesake Glass House Farms, Bella Thorne’s Forbidden Flowers, and Mama Sue CBD tinctures. The company has also created brand partnerships with singer-songwriter Jenny Lewis and Legion of Bloom. In August, Glass House reported cash and cash equivalents of $134.3 million as of June 30, 2021, versus just $4.5 million as of June 30, 2020. During the quarter, Glass House said it eliminated $38.3 million of debt through the completion of a Preferred Stock offering.
The first quarter of 2022 looks like a replay of last year. Cannabis stocks have gotten off to a good start as valuations moved higher. The early earnings releases from Tilray and Organigram brought optimism back to investors. Both companies reported rising revenues and solid balance sheets. In addition to that, California Governor Gavin Newsom said he would start to address the taxation issues for cannabis in his state. In other positive news, Germany’s new leaders have quickly moved to legalize adult-use cannabis in the country which could spark efforts for a legal market in Europe as a whole. All of this is great for the industry and for investors. While the latest COVID variant Omicron has put a damper on the pandemic recovery, there is hope that this variant will be short-lived. The fourth quarter certainly tested investors’ resolve, but it looks as if 2022 may finally pay off for the patient shareholder.