In an Aug. 6 research note, ROTH Capital Partners analyst Scott Fortune provided an outlook for and an update on the U.S. cannabis industry, noting that the first wave of Q2/21 corporate results is expected this week.
"We expect to see secular growth with margin improvements as industry tailwinds remain, namely in the U.S.," he wrote. He listed the other trends ROTH foresees.
With respect to multistate operators (MSOs), Fortune wrote, they will likely grow earnings because of three factors: new state cannabis legalization, increased cannabis use by consumers and continuing limited license structures in prime markets. H2/21 guidance by the MSOs should be positive in light of additional stores opening and cultivation expansions being achieved.
The ancillary cannabis operators, which Fortune described as "riding U.S. MSO coattails," are expected to remain strong in agriculture tech and hydroponics equipment and, on the downside, face increased costs resulting from supply chain problems.
As for cannabidiol-focused companies, ROTH expects them to experience slowed growth but continue innovating products.
Ongoing recovery in Canada's retail sector should boost foot traffic for the country's licensed producers and create mergers and acquisitions opportunities in the U.S.
Fortune listed some of the recent developments in the U.S. cannabis sector.
Highlights, with respect to the legislative aspect of cannabis, include, at the federal level, a Senate committee voting to expand military veterans' access to medical marijuana and the Substance Abuse and Mental Health Services Administration easing restrictions on grant funding for cannabis-related mental health treatment. Regarding specific states, in Pennsylvania, Pittsburgh approved cannabis sales in four zones. Illinois issued 55 business licenses for adult-use cannabis in July and another 70 since.
U.S. consumer use of cannabis is on the rise in certain states. In Illinois, for instance, adult-use cannabis sales reached $127.8 million ($127.8M) in July, up 17%, thanks in part to Lollapalooza. In California, an increasing number of locales embracing cannabis use continues expanding the market. In Connecticut, the expected growth in consumer cannabis use is reflected in its future cannabis tax revenue estimates. The state calculates total cannabis tax revenue to increase nearly 18-fold between 2022 and 2026, jumping from $4.1M to $73.4M.
ROTH has an Overweight rating on the U.S. cannabis sector.
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Disclosures from ROTH Capital Partners, Industry Note, August 6, 2021
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Within the last twelve months, ROTH Capital Partners, or an affiliate to ROTH Capital Partners, has received compensation for investment banking services from Agrify Corp., Ayr Wellness, Columbia Care, Inc. (CCHW.CN), CV Sciences, Inc., Flower One Holdings, Inc. (FONE.CN), GrowGeneration Corp., High Tide Inc., iPower Inc., KushCo Holdings, Inc. and Village Farms International, Inc..
ROTH makes a market in shares of Agrify Corp., Greenlane Holdings Inc., GrowGeneration Corp., HEXO Corp., Innovative Industrial Properties Inc, iPower Inc., Tilray, Inc. and Village Farms International, Inc. and as such, buys and sells from customers on a principal basis.
Within the last twelve months, ROTH Capital Partners, or an affiliate to ROTH Capital Partners, has managed or co-managed a public offering for Agrify Corp., Ayr Wellness, Flower One Holdings, Inc. (FONE.CN), High Tide Inc. and iPower Inc..
Shares of Columbia Care, Inc. (CCHW.CN), Curaleaf Holdings, Inc. (CSE: CURA), CV Sciences, Inc., Flower One Holdings, Inc. (FONE.CN), Green Thumb Industries, Inc. (GTII.CN), KushCo Holdings, Inc., MedMen Enterprises, Inc. (CSE: MMEN) and Verano Holdings Corp may not be eligible for sale in one or more states.
Shares of CV Sciences, Inc., Charlotte's Web Holdings, Inc (CWEB.CN ), Flower One Holdings, Inc. (FONE.CN), KushCo Holdings, Inc., MedMen Enterprises, Inc. (CSE: MMEN), Planet 13 Holdings and cbdMD Inc. may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used
as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors.
