Stocks in the cannabis sector have seen better days, which for many investors means it’s a good time to buy stocks at a discount.
However, “there have been moments where cheaper prices aren't necessarily better opportunities,” says Tim Seymour, portfolio manager at the Amplify Seymour Cannabis ETF (NYSE: CNBS).
Leading a live discussion at the Benzinga Cannabis Capital Conference in New York City on Friday, Seymour asked a panel of expert investors if now is a good time to double down on the cannabis opportunity.
What’s Driving Today’s Volatility In The Cannabis Sector?
“We’ve been in a downtrend for quite some time, the sector is fifty percent off the highs,” said
John Ramsey, portfolio manager at Measure 8 Full Spectrum Fund, an investment fund with over $500 million in cannabis assets.
Ramsey attributes the volatility of the U.S. cannabis sector during the summer to a lack of access to capital markets.
“Specifically around prime brokerage issues, the plumbing behind the market (how we buy and sell cannabis securities) and how institutions move in and out of markets. That’s been the major problem right now in the U.S. cannabis market and it’s created this massive fundamental dislocation,” Ramsey said.
Looking back at previous stages of the market, Ramsey said that it’s those times when a fundamental dislocation occurs are the best to acquire new assets and securities, calling it “a real opportunity for the long term.”
Sean Stiefel, managing partner at Navy Capital, describes the current state of affairs in cannabis as a pure-play of market forces.
“What we saw this year is that there are very few new buyers coming into the industry. There’s a buyer strike going on,” Stiefel said. “Until there’s a catalyst, everyone’s just saying ‘I’m gonna sit this out and wait,’ because there’s no reason these stocks are going to go higher if there are no more buyers tomorrow than there were today.”
Always Looks At The Fundamentals
Gerrel Olivier, senior analyst at Pura Vida Investments says that when it comes to cannabis, it’s important to focus on the fundamentals, instead of getting caught up on measures like intra-day volatility, which in recent times has been greater for cannabis than it has for the overall stock market.
“What we do at Pura Vida is really look at the P&L, look at the metrics, look at the consumer. And the consumer has increasingly demanded cannabis over time,” says Olivier.
Companies can have substantial valuations with great EBITDA margins and still be trading at multiples that don’t make any sense, noted Olivier who added that the opportunity looks attractive but advises staying close to the fundamentals.
Lead image by Ilona Szentivanyi. Copyright: Benzinga.
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