Benzinga - by Nicolás Jose Rodriguez, Benzinga Staff Writer.
A recent analysis by Viridian Capital Advisors provides intriguing insights into the liquidity of cannabis companies, indicating both advancements and setbacks in the sector.
Despite an overall increase in average daily dollar trading volume, some of the industry's giants are facing liquidity challenges.
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Surge in Trading Volume With Liquidity Caveats The report points out noticeable increases in trading activity, with all fourteen companies examined showing a higher average dollar volume in 2024 compared to 2023.
The growth in trading volume ranged from 25% for Schwazze (OTC: SHWZ) to a striking 292% for AYR Wellness (OTC: AYRWF).
This surge comes amidst a firmer cannabis equity market and anticipations of a transition to Schedule 3, suggesting an improved market outlook.
However…
However, a deeper dive into the data reveals a concerning trend for major Multi-State Operators (MSOs) such as Curaleaf(OTC: CURLF), GlassHouse (OTC: GLASF), GTI (OTC: GTBIF), Cresco (OTC: CRLBF), Trulieve (OTC: TCNNF) and AYR.
Despite their increased trading volumes, these companies have experienced an increase in the days required to trade their market cap (DTTMC), signaling a drop in actual liquidity.
For instance, according to the report, liquidating a 5% stake in Curaleaf, with a DTTMC of 585, would take an investor around 117 days if they wish to stay below 25% of the daily trading volume—a far cry from the liquidity expectations for a company with a $4B market cap.
Why Liquidity Matters To Investors For cannabis investors, understanding liquidity is crucial as it directly impacts your ability to buy or sell shares without affecting the stock price significantly. High liquidity means you can quickly move in and out of positions, which is essential in a volatile market like cannabis.
The mixed signals from the Viridian report highlight the need for careful selection of investments, focusing on companies with better liquidity to manage risks effectively.
This insight is especially important for those looking to make significant investments, as it can influence the ease and timing of entering or exiting positions, ultimately affecting investment returns.
Looking Ahead: DEA Decision And Cannabis Reform The report focuses on the potential rescheduling announcement by the DEA. While a move to Schedule 3 is expected, the report notes experts remain skeptical about its ability to attract more institutional investment without additional reforms.
The path to uplisting senior exchanges, seen as crucial for improving liquidity, seems to hinge on a combination of rescheduling, the passage of the SAFER Act and a new Garland memo.
Investors are cautioned to maintain a broader perspective on cannabis reform.
While 280e relief marks a significant step forward, the report underscores the importance of acknowledging the long journey ahead for the sector's full institutional acceptance and liquidity improvement.
Interested in the latest developments in the industry? Stay abreast at the upcoming Benzinga Cannabis Capital Conference in Florida on April 16-17. The two-day event at The Diplomat Beach Resort is a chance for entrepreneurs, both large and small, to network, learn, and grow. Get your tickets now on bzcannabis.com – Prices will increase very soon!
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