[MUSIC] Marijuana Stocks took a major hit in 2021.
And with federal legalization of
recreational cannabis still on the fence in the US,
many cannabis companies are
not living up to investors' expectations.
While some investors are tapping out of depart market,
could 2022 be an opportunity to tap in?
Hi. I'm Dez with The Motley Fool.
I spoke with Keith Speights about
the different challenges and
opportunities in the world of
cannabis and the cannabis industry and what to expect in
2022 as the pot industry continues to expand and grow.
Cannabis Stocks initially sold early in the year in 2021.
For example, Canadian cannabis producer,
Sundial Growers emerged as
a meme stock and it skyrocketed
more than 500 percent
by mid-February and then everything fell apart.
What happened? Well, first of all,
vaccines helped but the pandemic didn't end, of course.
We had the spread of new coronavirus variants,
there was the Delta variant and now the Omicron variant.
The Canadian cannabis industry experienced
some really significant supply-demand imbalances
that messed things up there.
The valuations of cannabis stocks in general really just
seemed to have gotten ahead of the market realities.
We just saw a big downturn and most
cannabis stocks after the beginning of last year.
Now going into 2022,
the political dynamics really don't
give a lot of reason to be overly
optimistic about near-term changes
to federal cannabis laws.
Of course, COVID-19 cases continued to hit record highs
in many areas due to the Omicron variant.
Unfortunately for investors,
many of these challenges that
caused cannabis stocks to
plunge last year are still present.
While most cannabis companies have failed
to live up to certain expectations,
there are a few pot stocks that have stood out
and seized the opportunity of expansion and growth.
Which pot stocks sold out to you the most?
Yeah, Dez. There really are still
some great opportunities with cannabis stocks even
after the pretty much abysmal returns overall last year.
Now I will say that
Canadian cannabis stocks such
as Canopy Growth and Sundial Growers,
they're probably not going to perform as well.
They can't jump into the US marijuana market yet
and there's probably not going to happen as
quickly as many investors had hoped.
That restriction really limits
the growth prospects for these Canadian pot stocks,
at least over the near term
but the sell-off in 2021 really has
given some US cannabis stocks
really attractive valuations.
I'll point out too, particularly Cresco Labs shares
trade at less than 2.5 times, trailing 12-month sales.
This company is already profitable.
It expects strong growth in 2022.
I think this is a stock that
investors really should take a hard look at.
Another US multi-state operator,
Air Wellness is even cheaper than Cresco.
Air shares trade below 2.4 times sales,
which is really low.
Unlike Canadian companies such as Canopy Growth,
Air already generates positive adjusted EBITDA,
as you were mentioning, earnings before,
interest taxes, depreciation, and amortization.
This company also continues to see robust growth.
I think those are
two US stocks that
investors really should take a look at.
It's also important to note Dez that there were
some cannabis stocks that did quite were last year.
Some delivered tremendous gains
and they still have solid prospects for this year.
A case in point with
the Innovative Industrial Properties,
this stock has beaten
the overall market for five consecutive years.
Its shares sold nearly 44 percent last year.
All Innovative Industrial Properties
needs to do to keep up those winning ways.
It's just a fine for more cannabis properties
to buy and lease back to operators.
I don't think that's going to be
a very difficult task for IIP to achieve this year.
What factors do you think should
be considered for those who
are considering investing in the cannabis industry today?
Well, let me just first say that
some investors are better off
staying away from cannabis stocks.
Let's just be realistic and honest here.
If you are a risk averse investor,
you're not going to like pots stocks. They're very risky.
We were talking about some of the challenges from
2021 have not faded away.
Most of these cannabis stocks
aren't going to appeal to investors
who can't tolerate pretty high levels of risk.
I would also say that investors should
stay away from most of
the Canadian cannabis stocks, at least for now.
My view is that the headwinds that
are facing these stocks,
especially that inability to
enter the US cannabis market,
that's going to probably continue
to hamper their performances.
I think, for the most part,
the Canadian stocks are probably
best to avoid, at least for now.
On the other hand, aggressive investors are
willing to take on relatively high levels of risks,
should be able to find some bargains and
some really great stocks in the US cannabis sector.
I would definitely put Air and Cresco in that group.
I also think long-term investors
can still win big time by
buying strong ancillary stocks
such as Innovative Industrial Properties.
Now I will say Dez, there's no guarantee that 2022 is
going to bring smooth sailing for cannabis stocks,
whether US or Canadian stocks.
In general, it probably won't but I
do think that there are some cannabis stocks that
could be in a great position to
navigate these steel treacherous waters and
deliver pretty solid returns for
investors both this year and over the long run.
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