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What the Market Will Bear: Stocks Sink, Cannabis Ventures See the Lowest Total Funding Since 2017

Cannabis-focused companies that went public in the past couple years are faring poorly, many trading at a fraction of their former highs.

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dollar-and-cannabis-plant As investment wanes, many major U.S. marijuana companies are cutting expenses amid declining wholesale flower prices, oversaturation of cultivation and diminished sales in the retail sector. ILLUSTRATION GCT

Venture investment in the cannabis space has wilted drastically this year. 2022 is on track to see the lowest total funding since 2017. Only 41 cannabis-related companies globally raised seed or venture funding, totalling $294 million, less than a third raised in the first half of 2021, reported Crunchbase.

As investment wanes, many major U.S. marijuana companies are cutting expenses amid declining wholesale flower prices, oversaturation of cultivation and diminished sales in the retail sector. The New Cannabis Ventures Global Cannabis Stock Index is now below 30, after breaching 90 in February 2021, according to U.S. News & World Report.

Cannabis-focused companies that went public in the past couple years, particularly those that made it to market through SPAC mergers, have fared especially poorly. Many trading at a fraction of their former highs. Even established players like Trulieve, Curaleaf and Green Thumb Industries are seeing shares currently trading at less than half of their 52-week highs. Last week, Canopy Growth shares fell 17% in premarket trades after an agreement with Constellation Brands Inc. to convert nearly $200 million of convertible debt into stock.

Downsizing to shave losses
Denver, Colorado’s Veritas Fine Cannabis closed a growing facility and laid off almost a quarter of its employees. Veritas is one of several companies to publicly scale back in recent months; others include Akerna, Eaze, Pure Greens, Bonfire Cannabis and Buddy Boy dispensaries.  One of Colorado’s largest marijuana cultivation brands, Veritas began facing challenging issues along with the rest of the industry last fall. According to the Colorado Marijuana Enforcement Division, the average wholesale price per pound of marijuana has fallen by almost 60 percent since January of last year, while monthly Colorado dispensary sales have decreased for eleven straight months on a year-over-year-basis.

While commercial cannabis currently resides in a bear market, some investors see the low point as an opportunity for investment. ILLUSTRATION CRAIYON

Tech companies feeling the pinch
Retailing software startup Dutchie, based in Bend, OR laid off 8% of its 700-person workforce this month, according to GeekWire.  Dutchie was valued at $3.75 billion when it raised a $350 million Series D round in October, which came just seven months after the startup raised $200 million. Dutchie’s financial backers described how the recent downturn “vaporized years of its gains.” Consequently, cannabis companies have seen enormous declines on public markets in recent months.

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“Capital markets have dried up,” said John Yang, founder and CEO of Treez, a cannabis commerce platform. Yang says the dramatic restructuring by companies is not unexpected. He sees the bearish market conditions pushing growth companies to cut costs, shave losses and push to get to profitability sooner.

 

The best of times the worst of times
But others believe that doesn’t mean isn’t a good time to invest in marijuana stocks. As some flounder, Yang also sees the depressed market fueling consolidation, with the top players acquiring struggling rivals, solidifying some investing options.

“Cannabis stocks overall have been trending down for the last year, and market caps are low,” says Jay Czarkowski told U.S. News & World Report, founding partner with Canna Advisors. “There is a tremendous upside for investors who get into cannabis now.”

Kevin Bush, chief financial officer with Sweet Leaf Madison Capital, added, “It is important for investors to keep in mind that all the reasons the sector has been so popular in the past, specifically the unambiguously high growth trajectory of the industry, still exist.”

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