Before the COVID-19 pandemic, Wall Street was salivating at the cannabis industry. Seemingly every cannabis company was going public, whether it should or not. Investment bankers were happily signing big checks and crowing about the green rush. The requisite puns were consistently bad whether it was an industry “growing like a weed” or “pot stocks are lit.”
Now, however, it seems cannabis has lost its buzz for Wall Street.
Major Wall Street firms cut equity analysts, and banking dollars dried up as stock valuations have been mired in a two-year bear market.
Cowen Group led the way for many cannabis stocks to public markets, and its analyst Vivien Azer was considered the best. The company has since cut its equity research reports, and while Azer still covers cannabis, it’s only for an internal audience.
Shortly after Cowen was acquired by TD Bank Group in March, Cowen said on Twitter that previous estimates, price targets, and ratings for the industry could no longer be relied upon.
Similarly, Cantor Fitzgerald saw the departure of its analyst Pablo Zuanic and stopped covering all cannabis companies except for WM Technology, better known as Weedmaps. Zuanic stepped out on his own and will soon restart his coverage under the Zuanic & Associates title.
Wall Street had been holding onto hope for some sort of legislative action that would nudge the industry closer to federal legalization, but that hasn’t happened. While some states continue to deliver millions if not billions of dollars in sales, onerous taxes and inefficient operations resulted in most cannabis companies facing financial struggles.
Overwhelming debt also forced many lenders to reconsider throwing good money after bad. Many companies have already gone public, leaving only some merger and acquisition business for banks. Overall, Wall Street’s dance with cannabis seems to have limped to an end.
Some equity analysts do remain, including:
Matt Bottomley of Canaccord Genuity
Andrew Carter and Andrew Partheniou from Stifel
Matt McGinley from Needham & Co.
Eric Des Lauriers of Craig-Hallum
Jesse Redmond of Water Tower Research
However, these analysts ask standard questions about same-store sales or future projections, and in this latest earnings season, cannabis executives were often unable to answer those questions. Either they don’t report those metrics or the situation in cannabis is so volatile that making estimates is difficult.
Ultimately, if Wall Street doesn’t see cannabis as a source of banking business, it quickly packs up its bags and moves on to the next promising sector – perhaps AI.
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