Cannabis Market Update

Heat Map Improving from Red to Green

Published by: StockWatchIndex Editorial Team
Rainer Poertner, Chief Analyst

It is no secret that California cannabis companies have been going through tough times for the last few years, and accordingly, the industry has consolidated heavily. As a result, the last two years saw the legal marijuana market shrink noticeably. According to permit statistics from the California Department of Cannabis Control, the market shrunk by almost 29% over these years. Since September 03, 2023, the number of active licenses began to increase again. Of the 9,236 permitted cannabis operations, 4,740 are cultivation and only 42 permits are active for large-scale outdoor cultivation.

California’s adult-use cannabis dispensaries reported a significant milestone, with more than $1.3 billion in taxable sales during the second quarter of 2023. This represents a 3% increase over Q1, marking a positive trend in sales. Following the lowest quarterly sales total in California since the beginning of 2020, this slight uptick in sales is a promising trend. Over the last year, the market expanded again by more than 12%, with the most significant changes observed in the cultivation sector.

Over the last year, the most significant growth was observed in the cultivation sector. The heatmap below (prices as of June 1, 2024) shows a significant improvement of 53% in share prices of our monitored companies from January 2023 to June 2024. The chart shows more green than red again, and the trend is up.

In January 2022, StockWatchIndex (SWI) invested in a portfolio of what we believed to be 14 leading companies in the Cannabis industry and began monitoring their share prices, return on Investment, and capitalization.

There is something unusual in the Air at California’s Cannabis Companies

O P T I M I S M

PORTFOLIO VALUE INCREASES BY 53%

Now, there seems to be light at the end of the tunnel. After the steep declines from January 2022, stock prices and market caps began to increase again beginning September 2023. As of June 1, 2024, values in our monitored portfolio increased by 53% compared to June 2023.

RESCHEDULING IMMINENT?

If cannabis is rescheduled under the federal Controlled Substances Act, legal marijuana businesses in California will see a reduction in federal tax burdens. Currently, licensed cannabis businesses are locked out of many traditional banking services. Rescheduling will increase financial transparency and will allow these businesses to deduct ordinary expenses such as payroll and rent from their federal corporate income taxes. The move to a less restrictive schedule will grant cannabis businesses greater access to financial services, potentially attracting new investment and further increase share prices.

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