‘No choke, no toke,’ as heads are apt to say..Canada’s publicly traded pot empire is set to take a hit — and not a good one — when fourth quarter earnings come wafting in, according to analysts.That’s because Canadian pot producers are likely to take a 15% haircut on earnings and valuations, according to a new report by Stifel GMP (formerly FirstEnergy). In it, 2023 “could separate the Colas from the Popcorns,” states VP Andrew Partheniou who supplies all the charts and graphs to provide the inside dope. He’s your dealer (but my dealer never had an MBA). Despite short term weakness, he remains optimistic for the long term outlook..“However, we believe this survival period could strengthen some operators by triggering strategic decisions to streamline businesses and better cash flows. Ultimately, we expect growth catalysts will come to fruition with those companies that have built enduring businesses able to fully capitalize on the opportunity, widening the gap between peers.” .In other words, the Dude abides..Bottom line: the publicly traded Canadian pot market is in the doldrums pending US federal legislation toward outright legalization, which has been slow in coming. A handful of states, including California — the largest legal weed market in the world — made moves to establish a bona fide retail industry. But those are hampered by restrictive federal banking laws that make it the largest taxed — in some cases 200% — cash market on the planet..The Biden administration in October of last year granted millions of pardons for simple possession — something Canada hasn’t done despite more than three years of legal sales — but unlike British Columbia, it hasn’t rescheduled cannabis as a Schedule I narcotic, which means it retains prohibited legal status along with heroin and cocaine..You can’t, for example, use your MasterCard to get high in Colorado. In Texas you’ll still get thrown in jail for lighting up in front of the Alamo. (Whizzing on it is worse — just ask Ozzy.) And legal stock transactions — listings for that matter — on the NYSE are still a bit of a grey market, which is why American companies have been heartily embraced by Canadian equities markets. .Nonetheless, a half-dozen states, including New Jersey, Illinois, Massachusetts and Vermont passed recreational marijuana laws representing a market opportunity of $35 billion by 2024 and a return on investment of up to 10 times. .Which is good news for publicly traded pot stocks. The problem is these shares are down collectively as much as 40% in the last year alone. That’s on top of another 30% drop in the year prior..Stifel notes Canadian sales ticked upwards during the pandemic — along with alcohol and tobacco. It expects share performance will ultimately track its “peers” in this regard..“Cannabis is a staple, just like alcohol, in our view,” Stifel said. However, the “expensive funding environment (is) not supporting cash burning businesses with next (US) federal catalyst in 2024.”.In other words… hold that thought. .Top picks in the sector, according to Stifel? Curaleaf Holdings, Inc. (CURA:CNSX); Green Thumb Industries Inc. (GTII:CNSX) and Trulieve Cannabis Corp. (TRUL:CNSX)
