U.S. Cannabis Sector to Show ‘Secular Growth With Margin Improvements,’ Analyst Says

Source: Streetwise Reports   08/11/2021

Behind that forecast, in part, are positive cannabis legislative developments and increasing consumer cannabis use, which are covered in a ROTH Capital Partners report.

In an Aug. 6 research note, ROTH Capital Partners analyst Scott Fortune provided an outlook for and an update on the U.S. cannabis industry, noting that the first wave of Q2/21 corporate results is expected this week.

“We expect to see secular growth with margin improvements as industry tailwinds remain, namely in the U.S.,” he wrote. He listed the other trends ROTH foresees.

With respect to multistate operators (MSOs), Fortune wrote, they will likely grow earnings because of three factors: new state cannabis legalization, increased cannabis use by consumers and continuing limited license structures in prime markets. H2/21 guidance by the MSOs should be positive in light of additional stores opening and cultivation expansions being achieved.

The ancillary cannabis operators, which Fortune described as “riding U.S. MSO coattails,” are expected to remain strong in agriculture tech and hydroponics equipment and, on the downside, face increased costs resulting from supply chain problems.

As for cannabidiol-focused companies, ROTH expects them to experience slowed growth but continue innovating products.

Ongoing recovery in Canada’s retail sector should boost foot traffic for the country’s licensed producers and create mergers and acquisitions opportunities in the U.S.

Fortune listed some of the recent developments in the U.S. cannabis sector.

Highlights, with respect to the legislative aspect of cannabis, include, at the federal level, a Senate committee voting to expand military veterans’ access to medical marijuana and the Substance Abuse and Mental Health Services Administration easing restrictions on grant funding for cannabis-related mental health treatment. Regarding specific states, in Pennsylvania, Pittsburgh approved cannabis sales in four zones. Illinois issued 55 business licenses for adult-use cannabis in July and another 70 since.

U.S. consumer use of cannabis is on the rise in certain states. In Illinois, for instance, adult-use cannabis sales reached $127.8 million ($127.8M) in July, up 17%, thanks in part to Lollapalooza. In California, an increasing number of locales embracing cannabis use continues expanding the market. In Connecticut, the expected growth in consumer cannabis use is reflected in its future cannabis tax revenue estimates. The state calculates total cannabis tax revenue to increase nearly 18-fold between 2022 and 2026, jumping from $4.1M to $73.4M.

ROTH has an Overweight rating on the U.S. cannabis sector.

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