Fewer Research Analysts Covering Cannabis Underscores Industry Woes


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Fewer Research Analysts Covering Cannabis Underscores Industry Woes

The U.S. cannabis industry is facing challenging economic headwinds, reflected by fewer research analysts covering the industry. High taxes, high interest rates, rock-bottom stock prices, and slow federal MJ reform are all factors contributing to this trend. Cantor Fitzgerald and Cowen are among the financial-services firms that have dropped coverage of U.S. cannabis companies. This “speaks to the unhealthy state of our industry”, says Jesse Redmond, the managing director of the cannabis sector and head of research at Florida-based Water Tower Research.

According to Redmond, lower share prices and fewer mergers and acquisitions means there’s less revenue to fund research. Debt financing is becoming more common compared to equity raises, which means there is a smaller audience for research. Many financial-services firms are still covering U.S. plant-touching companies, such as Water Tower Research, Viridian Capital Advisors, Echelon Wealth Partners, and Canaccord Genuity. However, there are concerns that the optimism of many analysts in the past stemming from predictions of federal legalization and the SAFE Banking Act have been over-optimistic.

Finally, cannabis companies are still finding their footing and have a long way to go before the industry is ready for investment on a large scale. Restated financial results and immaturity in state accounting are other factors investors consider before investing in cannabis companies. However, there are still some analysts covering US plant-touching operators and this

“slight incremental negative” will not impact the industry in the long-term.

An obstacle hindering the growth of the cannabis industry is its inability to attract large institutional investors. This is due to factors such as obstacles in banking and the fact that cannabis is still illegal at the federal level.

It is important to remember that cannabis is now legal in many states and will only improve with time. There is tremendous potential in the cannabis industry, and it will continue to become more attractive to investors as the industry matures.

Kate Robertson can be reached at [email protected].

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