Cannabis Stock Predictions for 2022

Things are certainly looking bleak for many companies involved in the legal cannabis sector in the United States. And some Wall Street firms say things won’t be any different in 2022. That’s the prediction of a report compiled by Viridian Capital Advisors. The New York-based company exclusively deals with financial and strategic consulting for companies that are active in the capital markets. Key takeaways from the report will be:

The low rating will continue

This article is based on the most recent report by Viridian. Unfortunately, the report fails to paint a rosy picture for cannabis in 2022. That makes matters worse when you consider that 2021 hasn’t been a great year for makers and investors in marijuana stocks. Registered cannabis companies are now trading at 2.3 in terms of EV (enterprise value) at sales multiple. Equally disappointing is the EV to EBITDA, which relates to Earnings Before Interest, Taxes, Depreciation and Amortization, at 8.0. The stats are nothing short of shocking when you look at the 4.1x and 16.4x 2020 numbers for the two ratios in the order mentioned previously.

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According to the report, the shortage of institutional assets led to a fall in prices. Addressing this issue is imperative to ensure an upward sloping financial curve for the industry, according to Viridian experts. Federal laws are unlikely to be changed before the 2022 midterm elections. Such a change, in turn, is essential to facilitating institutional investment and opening up the larger U.S. banking system to entrepreneurs looking to get involved in the cannabis industry. Delays in creating new markets for legal marijuana use are another important factor. However, as more institutional investors join the fray and current growth initiatives begin to bear fruit, the financial chart is expected to shoot up once the storms and strains have passed and we have more legal clarity on cannabis.

A good offer for long-term investors

While Viridian forecasts flat margins, the company is also forecasting revenue growth for the cannabis market at a whopping 25% annually through 2023 and 2024. As a result, EV/EBITDA stock trading is expected to trade at 5.7x and 4.6x for 2023 and 2024, respectively.

Such numbers can be compared to mature industries. On the bright side, however, year-over-year growth is expected to be a whopping 58% in 2022. Of course, as they say, what suppositions and assumptions are, is exactly that. But the basis of such beliefs is rooted in reality, making 2023 and 2024 landmark years of an emerging, booming, and thriving industry.

Investors who have a long-term perspective on their shares should therefore take a close look at the industry. There just aren’t that many sectors where the number of operating companies can potentially double in just two years.

Interesting predictions for 2022 from the report

• The dominance of large multi-state operators is heavily influenced by relatively smaller players.
• Industry consolidation will continue at a faster pace.
• Blockades on legal recreational marijuana use in the states will continue to unwind, but it’s not expected to significantly impact stock returns.
• Falling cannabis flower prices will benefit by creating new opportunities for new entrants and negatively impact the industry.
• The huge institutional interest in the cannabis market hints to some extent at the likely scenario for operators once they are legally granted access to the banking sector.
• Operators of all sizes will find debt becoming cheaper, and easier access to capital will spur industry growth, leading to significant acquisitions and mergers.
• US cannabis companies will look to opportunities abroad.
• Competent operators are expected to guard against interstate sales.

financial trends

Viridian estimates $12.7 billion of capital inflows into the cannabis market through December 24 of last year. This is a significant $1.4 billion less than the figures for 2018, the previous peak year. On the other hand, industry fundraising surged over $1.9 billion, a whopping 60% jump. But the fact that many of the numbers lost their luster was the U.S. cannabis industry’s significant debt. Debt stands at $3.4 billion for U.S. markets, a whopping 806% increase from 2018. Internationally, fundraising for the cannabis industry has declined quite a bit. Canada reported a whopping $5.9 billion, or 76%, decline in fundraising. International percentages are similar, with total fundraising falling by 80%.

CBN takes the front seat

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The minor cannabis ingredient cannabinol, popularly abbreviated as CBN, has been the focus of the cannabis industry this year. It has to be distinguished from CBD or cannabidiol. Both are forms of cannabinoid compounds, but they are different from each other. The growth of CBN-based cannabis products has been greatly facilitated by the new, faster methods of CBN production that have emerged. Sometimes, if not often, CBN is used along with THC to help people sleep better at night. Facts show that CBN accounts for 14% of all retail sales of recreational edible cannabis products in California. This growth will continue to expand alongside the trend spreading to other recreational cannabis markets.