Four things to watch in cannabis in half earnings season

Things are heating up up in cannabis space.

The group’S earnings the season has shown promising signs for some of the largest Canadian and US growers, with lot of in rapid growth e in waiting for increasingly favorable legislative scenarios.

Here are four things for investors should stand and watch in this heat market, according to Tim Seymour, founder and chief investment officer of Seymour Asset Management and portfolio manager of the Amplify Seymour Cannabis ETF (CNBS).

1. Profitability

One key metric to monitor during earnings season is what companies are in able to tap into their profitability, Seymour told CNBC’s “ETF Edge” on Thursday.

“In Canada last week, what we heard from Tilray is not just this company … the most profitable company in cannabis, [but] continues to be more profitable, “said Seymour, also a regular CNBC contributor.

Not just the merger of the company with Aphria showed “tremendous synergies in terms of cost reduction, “but CEO Irwin Simon commented on the post-earnings conference call on global growth and the extension of Tilray’s acquisitive streak were all more promising, Seymour said.

“I think a lot of people could be underestimating where story it can go, “he said.

heavy Canadian hitter The growth of the canopy is also one to keep an eye on despite taking longer to reach profitability, especially considering yours main stakeholder, US alcohol giant Constellation Brands, Seymour said.

“Investors should take a lot of comfort in the fact that Constellation Brands is a distribution and branding powerhouse and that they are playing the long game here, “he said.

The story for US cannabis companies are just so much on growth, with Curaleaf reporting a 140% year-over-year push, he said.

“As we enter 2022, you will have this step-up function in terms of their revenue numbers and I think it’s something you will see in all the board”, including US colleagues Green Thumb Industries and Trulieve, as many of they intend to increase cultivation over the next year, Seymour said.

And with the largest multistate in the United States operators trading anywhere from eight to 16 times 2022 earnings before interest, taxes, depreciation and amortization or EBITDA, they seem stacked cheap against other high-growth consumer packaged goods groups, he said.

“When considering the growth you are receiving in cannabis, this is a pretty exciting time to watch them earnings, “He said.

2. M&A

Mergers and acquisitions will be central to cannabis market’S development in over the next few months, Seymour said.

“I expect significant mergers and acquisitions and consolidation in the sector not only as the largest multi-state operators and the Canadian [limited partnerships] they try to get bigger and increase their strategic geographic footprint, but me also I think you will see those strategists who have been waiting for on the margins begin to start gnaw a little more”as valuations become attractive enough for certainly rich in capital players, He said.

3. Technicians

From a technical point of view, not everything is so rosy for stocks of cannabis, with shares of some of the biggest players losing steam in Friday close notwithstanding in-line or better than expected earnings, Seymour said.

“We want to see a little of these graphics get back over their 200 days [moving averages], “He said.

Ever since Senate Majority Leader Chuck Schumer proposed a bill to decriminalize marijuana on a federal level in in mid-July, many US cannabis stocks have declined in meaningfully, with GrowGeneration down 31%, TerrAscend down 22% and Curaleaf down 16%.

“While we evaluate the allocation in CNBS, the price the action is dictated by both technical and fundamental factors, “wrote Seymour in a Friday email to CNBC.

“Some of technical factors include continuing custody headwinds for institutional investors to hold existing positions, and lack of new capital entering the industry as many institutions are not yet in able to own the industry because of its federal illegality status. “

The main holdings of CNBS such as of Friday was Tilray, Green Thumb, software company and WeedMaps parent WM technology, Canopy Growth and Trulieve.

“Reaffirmation of fundamental and negative price action translates in chance in how much we are an active strategy trying to position the bottom for the long term growth of industry, and it can be tactical in this environment”wrote Seymour.

4. Macro

Although the Schumer bill may have been a disappointment for investors, there are still numerous macroeconomic factors drivers boost the cannabis industry forwardSeymour said Thursday.

“It is important to point out that the addressable market it continues to grow state by state, “he said.” Every state that has a doctor program seems to advance e moving towards something [recreational use]. Those who don’t have a doctor program they’re starting to go through that scrutiny process. “

American cannabis market grew to about $ 23 billion while Canadian market it’s about $ 4 billion, according to Headset. Arkansas, Florida, Idaho, Mississippi, Missouri, Nebraska, North Dakota, and Ohio all have cannabis-related initiatives on their 2022 ballots, according to Ballotpedia.

Federal decriminalization will be also in the end it will be a huge advantage for the group, as it would be allow US Cannabis Companies a trade on big exchanges and earnings access to some of the world’s largest investors, Seymour said.

“If you are investing now in cannabis you are in most of in after you of some of major investors in the world and I think it is part of the emotion, “he said.

CNBS is up about 24% year to date.

Read everything of Seymour’s revelations here.

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