As MSOs in the U.S. line up to report quarterly results, Cantor Fitzgerald forecasts that the group will post better-than-expected sales despite a potential margin squeeze at a time when cannabis reforms are impacting market sentiment.
Green thumb industries (OTCQX:GTBIF) kicked off earnings season for US MSOs this week, and a host of its peers are expected to report quarterly earnings in the coming weeks as investors hope the cannabis sell-off will reverse.
The AdvisorShares Pure US Cannabis ETF (MSOS), which represents US MSOs, has lost more than two-thirds of its value over the past 12 months, according to this chart. While investors might hope that earnings will drive the recovery, Cantor argues that current sentiment is mostly driven by the prospects for U.S. cannabis reforms.
Last week, US Senator Cory Booker proposed a compromise between marijuana business banking and criminal justice reforms in what he called “SAFE Banking Plus” legislation.
“We think SAFE Banking Passage (in the lame duck) is now (really) the worst-case scenario, with leading Senate Democrats pointing to compromises,” wrote analyst Pablo Zuanic, referring to the bill, which has banned the House on multiple occasions has said goodbye.
While the SAFE Banking Act does not unschedully repeal cannabis, allow for an uplisting, or provide a framework for legalization, the analyst expects the bill will benefit MSOs and spark debate about future marijuana-related regulatory developments.
Turning to second-quarter financials, Zuanic predicts that the group’s profit margins may have come under pressure as companies react to increased competition and consumer weakness.
The analyst notes that companies are largely expecting flat sequential growth in the second quarter and argues that MSO Group’s sales could exceed forecasts due to seasonal fluctuations.
According to the analyst, a seasonal upleg is particularly likely for those with exposure to the New Jersey leisure market, namely Curaleaf Holdings (OTCPK:CURLF), TerrAscend (OTCQX:TRSSF) and Acreage Holdings (OTCQX:ACRHF). In April, New Jersey allowed 13 medical marijuana stores to begin recreational sales in the Garden State.
In addition to the above names, a variety of other MSOs including Trulieve Cannabis (OTCQX:TCNNF), Cresco Labs (OTCQX:CRLBF), Ayr Wellness (OTCQX:AYRWF), Ascend Wellness (OTCQX:AAWH), Columbia Care (OTCQX : CCHWF), Verano Holdings (OTCQX:VRNOF) and Jushi Holdings (OTCQX:JUSHF) are expected to report their quarterly results this month.
As predicted by Cantor, Green Thumb Industries (OTCQX:GTBIF), a dominant New Jersey MSO, reported better-than-expected Q2 2022 sales last week.
https://seekingalpha.com/news/3868536-us-msos-to-top-sales-forecasts-despite-pressure-on-margins?utm_source=feed_news_all&utm_medium=referral U.S. pot stocks to top sales forecasts despite pressure on margins (OTCMKTS:TCNNF)