Although most United States multi-state operators (US MSOs) have recorded incremental growth on a year-over-year basis, the market punished companies for reporting high single-digit percentage revenue growth when compared to the prior quarter.

We are surprised by the recent decline and believe the market has extremely high expectations for US MSOs. In the prior quarter, most US operators reported double-digit growth and we will monitor the trend in 2022 and beyond.

When compared to the prior year, leading US MSOs reported impressive growth and we consider this metric to be significant. We analyzed several high-profile US cannabis operators and were surprised by the range of revenue growth (from a percentage standpoint) on a year-over-year basis. We looked at the earnings reports from several leading US MSOs and several recorded more than 100% revenue growth when compared to the same period last year.

Several States Report $1+ Billion of Cannabis Revenue

2021 has been a banner year for the US cannabis industry and several states have reported more than $1 billion of sales so far this year. We consider this level of revenue to be an important milestone for any cannabis market and expect even more states to accomplish this feat in 2022.

We believe the states a US MSO is levered to will play an important role in the growth of the company. Some of the states that we are most bullish on include: Arizona, California, Colorado, Florida, Illinois, Massachusetts, Michigan, Nevada, New York, and Pennsylvania.

A common characteristic of the US states we are bullish on is related to recreational cannabis being legal. Over the next few years, we expect to see a substantial increase in the number of states with a legal recreational cannabis market and believe this will prove to be a major catalyst for the entire sector.

Expect Continued Consolidation in 2022 and Beyond

An important trend that we have identified so far this year is related to consolidation. We have seen a large spike in the number of Canadian Licensed Producers (LPs) which are acquiring US hemp assets to have leverage to the country ahead of federal legalization. Although there is no timeline for the legalization of cannabis at the federal level, we believe it is a matter of when, not if.

We have noticed an uptick in activity in regards to mergers and acquisitions (M&A) of smaller-scale or niche US cannabis businesses and brands by leading US MSOs. Many of the transactions have been in markets like Florida, Illinois, Nevada and Pennsylvania, and we expect the trend to continue in 2022 and beyond.

US Cannabis Stocks have Been Recording Volatile Price Movements

The last month has been volatile for the US cannabis sector and we attribute this to speculation on the potential impact of cannabis legislation that was introduced by a group of Republicans. We are favorable on the changing tide with the Republican party and believe that the US cannabis industry is reaching an inflection point.

The COVID pandemic put tremendous strain on federal and state budgets and we need to find new taxable revenue streams as a result. We believe cannabis is part of the answer to this situation and consider the legalization of sports betting to be a positive indicator for cannabis.

We expect 2022 to be a period of strong growth for the US cannabis industry and expect to see major legislative advancements during this time. We believe federal legalization in the US is the most significant potential catalyst for the entire cannabis industry and will monitor how the sector continues to advance.

If you are interested in learning more about the growth of the US cannabis industry, please send an email to support@technical420.com with the subject “US Cannabis” to learn more.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.