By Steve Gelsi
Cannabis companies look toward 2022 with plans to expand their businesses to legal markets in more states despite an expected lack of movement on the federal level to end cannabis prohibition.
As a whole, cannabis companies hope to see the New Year reverse their weak 2021 performance, even if the underlying business of legal weed has continued to pick up steam in the U.S.
Federal legalization will remain on the back burner on Capitol Hill for 2022 as well, according to industry observers.
Some hope remains, though, that SAFE Banking legislation opening up the federal banking system to cannabis companies could possibly move forward in 2022. That could pave the way for more Nasdaq listings by U.S.-based plant-touching companies such as Curaleaf /zigman2/quotes/205334348/delayed CURLF -1.21% , Green Thumb Industries /zigman2/quotes/200716694/delayed GTBIF -2.29% , Trulieve /zigman2/quotes/207658767/delayed TCNNF -1.96% , Ayr Wellness /zigman2/quotes/201137876/delayed AYRWF +2.90% or Cresco Labs /zigman2/quotes/200392306/delayed CRLBF +1.10% . It would also eliminate the need to conduct business in cash by making it much easier for dispensaries to conduct basic financial transactions through standard bank accounts.
Meanwhile, Canadian cannabis companies such as Canopy Growth CGC , Tilray TLRY and Aurora Cannabis ACB may continue their pattern of acquisitions. Profits remain elusive because of oversupply and other challenges.
Overall, the lack of major movement in Washington dampened prospects in the sector for both U.S. cannabis companies and Canadian companies seeking to expand south of the border.
“Investors showed up earlier this year because they expected quicker progress towards legalization and left because they became disappointed,” said Alan Brochstein, founder of 420 Investor and New Cannabis Ventures. Brochstein’s Global Cannabis Stock Index shows 2021 giving up gains in the sector from the previous year, alongside negative returns in 2018 and 2019.
In the cannabis ETF world as of Dec. 15, the AdvisorShares Pure US Cannabis ETF /zigman2/quotes/220307682/composite MSOS -0.77% is down by 35% in 2021, the Amplify Seymour Cannabis ETF /zigman2/quotes/213290933/composite CNBS +1.04% is off by about 23%, the AdvisorShares Pure Cannabis ETF /zigman2/quotes/211349815/composite YOLO -0.56% shrank in value by 25% and the Cannabis ETF /zigman2/quotes/213173823/composite THCX -0.59% has retreated by 31%.
Despite prohibition on cannabis at the federal level in the U.S., individual states continue to ramp up their legal cannabis markets as voters and state legislatures approve medical- and adult-use programs.
The heavily populated Northeast as well as the Midwestern states of Michigan and Illinois scaled up in 2021, with nascent businesses in each state expected to grow in 2022.
All told, the total addressable market for legal cannabis is expected to increase by 16% to $29 billion in 2021 from about $25 billion in 2021, according to estimates by the investment bank Cowen.
Looking ahead to 2022 in the cannabis sector, 420 Investor’s Brochstein said he expects another consumer packaged-goods company to make a major investment after moves by Constellation Brands /zigman2/quotes/207737284/composite STZ +0.20% , Scotts Miracle-Gro /zigman2/quotes/200553749/composite SMG -3.14% and Altria Group /zigman2/quotes/208895754/composite MO +1.32% in recent years.
The leading multistate operators such as Curaleaf and Verano Holdings /zigman2/quotes/224743992/composite VRNOF -7.54% will continue to see strong growth from a combination of organic sales increases and acquisitions, Brochstein said.
A key factor will be the timing of New Jersey’s commencement of legal adult-use sales, as well as moves by New York to start its process to issue cannabis business licenses with an eye on social equity.
Matt Melander, president and chief financial officer of Levia, a Massachusetts-based maker of cannabis-infused seltzer water, said he expects that the company’s acquisition by Ayr Wellness for a price of up to $60 million will close in early January. Levia only sells in Massachusetts now, but Ayr operates in Florida, Massachusetts, Pennsylvania, Arizona, Nevada and New Jersey and continues to expand its footprint.