Marijuana faces a historic crisis. The main companies in the recreational cannabis sector are in a dead end due to the demand for land for the omicron variant and without the ability to finance themselves to face the situation. In addition, the main companies in the sector and many retailers have already signed a letter in which they ask the Government to remove taxes on the consumption of this drug to allow them to compete with the illegal sale and because they are currently “on the brink of collapse.”
Major cannabis brands lived a couple of years ago a stock market fever for the promise that the United States would make a national law that would open up the enormous North American market fully and not only in specific states. Now, after the illusion for the arrival of Biden, that scenario is unlikely and the actions are dragged into a downward spiral.
Canopy Grouth has already lost 45% of its value since November highs, Cronos Group 48%, Aurora Cannabis 36%, Tilray 50% and Hexo Group 56%. For its part, since the maximum of February, the falls of all these groups always exceed 70% and in cases such as Tilray or Hexo, they reach decreases of 89% and 94% respectively.
The main problem these companies have is that the US banking system is closed to these companies and institutional investors don’t even want to hear about the Cannabis business because of the damage this can do to their reputation. Something as simple as renting a field to cultivate it requires numerous intermediaries that make the final product more expensive. “Investors showed up earlier this year expecting faster progress toward legalization and left because they were disappointed,” said Alan Brochstein, founder of 420 Investor and New Cannabis Ventures.
To all this has been added a sharp drop in demand due to covid, which has drastically reduced social events, a supply crisis that has made prices more expensive and taxes on cultivation and sales that have sharply reduced margins. All these problems, added to the loss of confidence that Washington will change the situation of a national legalization, is causing a massive exodus of investors.
In 2022 it will continue to drop but we will see increases of 25% in 2023 and 2024
Viridian Capital Advisors, a New York financial and strategic advisory firm dedicated to the cannabis market, affirms that this 2022 the actions dedicated to this drug will continue to decline. “Before there is a significant institutional investment, legislation must be passed so that the Cannabis industry can operate in the banking system” and the firm does not expect such a thing “at least until the end of 2022“. There are elections to the senate in November of that year and they do not think they will touch this subject until they are over.
However, Viridian believes that from then on we will see increases of 25% in 2023 and 2024, although it will place the sector in figures very far from what it was before the pandemic. From the firm they believe that this year the sector will be the protagonist of a wave of mergers and acquisitions due to the fact that the industry must reconfigure itself after the blow suffered this year.
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