A year ago today, we did a BNN Market Call on the day of marijuana legalization. This time last year, marijuana stocks were all trading at ridiculous prices and investors were in a frenzy. Big names were trading at multiples of 100 times their revenue when Amazon trades at 3 times its revenue.
During this Market Call we said we are not participating in the sector, that companies would have to grow revenue and show a true path to earnings and profitability. In many cases see 10 to 100 times revenue growth to justify where the stocks are today.
One year after legalization the sector is deep in the red, the primary ETF for the Marijuana industry is down 56% from legalization, and most of the biggest companies failed to reach their revenue goals. In most cases their cash on the balance sheets is lower and depleting and the frenzy has ended. The reality check is in place—these companies are struggling, and many management teams are being punished or removed.
There is nothing wrong with taking some risk, but oftentimes, the risk reward is not fair, and we think this remains the case with the Cannabis sector.