Each year, at this time of significance for the cannabis industry, Jushi Holdings (JUSHF), a vertically integrated, multi-state operator in the cannabis business, commissions a poll on attitudes to cannabis. This year’s poll, conducted by Pollfish found that as more and more states allow for legalization, whether for medical use only, or increasingly, for recreational purposes or “adult-use,” people’s perception of the industry and its products are changing quite quickly.
The survey was done on adults of 21 and over who live in states where medical and/or adult-use laws are in effect, and the most striking number is the first one off the bat. When asked “Are you now or have you ever been a consumer of legal cannabis purchased from a dispensary?” only 33% of respondents answered “no,” with the other two thirds answering with some form of “yes.” Now I assume that those who were interested in the subject were more likely to answer questions on it, so the response is probably a bit skewed towards a pro-pot demographic, but even allowing for that, it is a remarkable number.
There are several things contributing to the wider acceptance of and willingness to try cannabis products. The awareness and education that comes with legalization are factors, of course, as is the wide range of products available. Non-traditional users are far more likely to try THC-infused edibles or drinks, say, than they are to smoke pot in the “traditional” way. Then there is simple accessibility. It is far easier and safer to go to a regulated dispensary to buy and try products than to access cannabis on the illegal market.
What is most interesting to me about Jushi’s poll, though, is what it reveals about people’s attitudes to cannabis. The company’s CEO, Chairman and Founder Jim Cacioppo said, “With the majority of Americans now living in a state with a medical or adult-use program, misconceptions around cannabis are being shed. The latest data clearly shows more people are not only embracing cannabis in their own lives, but also seeing the value it brings to their communities.”
That shows in the fact that when asked if the cannabis industry was important to the national and local economies, over 60% answered “yes” in both cases, with close to 70% supporting federal reforms that would give companies access to traditional banking. In addition, 59% felt that overall, cannabis was beneficial to society, and it is clear that attitudes have shifted considerably over even just the last few years.
And yet, the one-year chart for the Global X Funds industry ETF (POTX) looks like the below.
And most individual companies in the business look no better. Why is that and will things improve? The first of those question is the easier one to answer, even though there are multiple reasons for the underperformance of industry stocks.
Just over a year ago, pot stocks were all the rage. Everything associated with the emerging industry soared as states began to open up and the potential became clear. That got overdone, though, and set up for declines this year based purely on valuation. There are also other reasons for the drops, reasons associated with the nature of adult-use legislation and regulations as states have legalized individually. The optimism assumed that the publicly listed companies in the industry would have a size and readiness advantage that would see them quickly dominate cultivation, distribution and retail as the industry grew. That, however, hasn’t happened, because most states that have legalized to this point have made sure it hasn’t.
I have recently been doing some work with Global Regulatory Risk Advisors. And its website THCregs.com offers analysis of data and news around the industry, so am all too aware that legislation and regulations around this subject are complex and evolving. However, until recently, there was one common theme: most states had offered help to license applications from communities disproportionately damaged by the previous illegal status of cannabis and by the war on drugs. That meant that priority was given to small businesses, which is great for them, but has handicapped the multi-state players whose stocks are publicly traded. Then there is the continuing and increasingly ridiculous illegal nature of cannabis at the federal level that restricts access to banking and capital in the industry, and therefore inhibits growth. Even if companies could grow, though, most states limit the number of licenses one company can hold. Little wonder then that the probably excessive expectations for cannabis stocks have not been met.
There is hope, though. Some states, most notably New Mexico right now, are trying a different approach, eschewing positive discrimination and license limits, and trusting market forces to do the right thing. They have passed legislation without much financial and licensing regulation at all, which will give the larger, muti-state companies a chance. If that approach works, it could lead to relaxation of regulations elsewhere, where cash flow issues have beset many of those small, individual concerns. There are also attempts underway to fix the federal mess around the subject, with a couple of bipartisan bills looking to be introduced in Congress soon.
The fact is that, as Jushi’s poll shows, attitudes to the industry are evolving rapidly, which makes it likely that the potential of the business can really be unlocked over the next few years. If, as that occurs, state regulations also evolve and give larger companies a more even playing field, pot stocks will rebound strongly. Obviously, that is a lot of ifs and buts, so there is still significant risk in any stock in the industry. However, that potential is so huge that those who can bear that kind of risk should consider building small positions in an ETF like POTX or some of the individual stocks on the drop.