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Cannabis industry has ‘a big disconnect’ between stock prices and performance: Strategist

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Dan Ahrens, Portfolio Manager of the AdvisorShares Pure Cannabis ETFs, sits down with Yahoo Finance Live to talk about the legal marijuana industry's growth, legalization prospects by state, and limited market development in Canada as compared to the U.S.

Video transcript

- Welcome back, everyone. Cannabis ETFs are trying to hold on to green territory today while the space overall has seen a move lower to start 2022. Dan Ahrens, portfolio manager of the AdvisorShares Pure US Cannabis ETF and the AdvisorShares Pure Cannabis ETF, joins us now. Good to have you here with us today. And Dan, the upside here is still deeply connected to the federal reforms. So what advances has the industry made in the interim?

DAN AHRENS: Well, in the interim, especially on the US side of the border, companies continue to grow, operate, really knocking it out of the park, if I can say, on a fundamental value. Sales are up. State by state, we see new approvals, whether it's for medical marijuana or for adult use cannabis. It's now legal in some form in 40 states.

But as you say, I hate talking about politics, and I hate waiting on politicians to follow through on the campaign promises they made well over a year ago.

- And so--

DAN AHRENS: But companies in the US are performing very well on their own. Go ahead. Sorry.

- So-- no, no, no. That's great context and particularly in this interim period. If they are performing so well, why do you believe that isn't showing up in the shareholder value right now?

DAN AHRENS: Well, I can say I have never seen an industry or a sector with such a big disconnect between company performance with revenue growth and other fundamental metrics versus the stock price. So there's a big misunderstanding between cannabis on the Canadian side of the border and the US side of the border. These Canadian companies that had a lot of excitement when they legalized in Canada at the beginning of 2019, these companies get to list on NASDAQ or even the New York Stock Exchange. And they're big names that people are familiar with like Canopy and Tilray.

But sales are declining in Canada. It's not that big of a market compared to the United States. In the United States, we have these multistate operators that until the feds fix it like they've promised to fix it, these companies can't list on the major exchanges. They list on secondary exchanges in Canada, then trade OTC in the US. They can't get access to federal banking.

They have limited institutional investment. They have a big uphill battle banking-wise and investing-wise. But fundamentally, these companies are multibillion-dollar companies with fantastic revenue, growth but they're held back by these disadvantages that we're waiting to get fixed federally.

- When thinking about the long-term opportunity here, what companies, broadly speaking, are the better bet here when thinking about cultivators versus distributors or retailers and other sellers? Or are vertically-integrated companies really the primary place to be looking?

DAN AHRENS: Yeah. I'm glad you said that term, vertically integrated, because that's really the way things work in the cannabis space. We're talking about companies that grow their product, package their product, and, in many cases, sell the product in their own dispensaries.

Now, there are-- there has been a lot of advancement. There's a lot of deals. There's wholesaling, and there's partnerships where people are selling cross products. But that's what we get vertically integrated and on a state-by-state basis. Even with a lot of the federal reforms that have been proposed, they've talked about the ability to keep it to states' rights, individual states that want to approve whether it's medical or adult use.

So we have a nice situation in US operators. And what I mean there is I like all four or five or six or seven of the biggest top operators in the United States. I'm talking about companies like Trulieve. I'm talking about companies like Green Thumb Industries, Curaleaf, Verano, Cresco Labs. I could go on. But those are really the five largest MSOs or multistate operators in the United States.

- As the midterm elections and, of course, coming forth in 2022 are anticipated to really kind of rebalance or extremely shift, at least, the framework in Washington, DC, for where you would even see some type of reform in the cannabis space, is this the critical year for or this the critical kind of run up or lead up time where if a deal-- if any type of movement does not happen in these next few months prior to the midterm elections, and we know that there typically is a ton of logjam or just people sitting on their hands in Washington, DC, leading up to a midterm election, are these the critical months where if something does not happen, then we're looking at years down the line from now?

DAN AHRENS: No, I don't see it like that at all. I do like the midterm elections coming up to put pressure on the politicians once again to act on promises they've already made. This is another chance for them to get in front of the cameras and say that they're coming through with their campaign promises. And a big part of that is talking about social justice.

We're talking about a lot of people sitting in jails for marijuana possession. And about 70% of the US population wants to change that. They want to decriminalize. And social justice is an important piece here.

Now, we have a great deal of momentum. I don't see the midterms as a make-it-or-break-it deal or time frame. We're seeing a lot of positive momentum from both sides of the aisle now. The ball was in the Democrats' court to get this done. They haven't got it done yet. We're seeing a lot of Republican support now for changing the way things are done when it comes to marijuana.

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