Cannabis Market Facing Challenges: Analysis of Undervalued Stocks

The cannabis industry is once again in the spotlight for investors after a list of the eight most undervalued cannabis stocks, according to analysts, was recently published. Particular attention is being paid to Innovative Industrial Properties and its valuation compared to other potential investment opportunities. Over the past ten years, the cannabis sector has experienced significant market fluctuations: from initial record highs to a dramatic decline in valuations when challenges such as the lack of federal legalization became increasingly apparent. Despite growing acceptance at the state level, federal legalization remains a significant obstacle. Another issue for the industry is the much higher taxes imposed due to federal prohibition. Furthermore, legal providers face competition from the black market, making it difficult for companies to increase revenues and improve shareholder value. The recent US elections have brought additional uncertainties for the cannabis industry. Despite earlier signals from former Vice President Kamala Harris, who was in favor of national legalization, the future remains uncertain under the Trump administration. Efforts for legalization were unsuccessful in the states of North Dakota, South Dakota, and Florida; however, Nebraska made a positive step towards medical use. Meanwhile, 24 states in the USA have legalized marijuana for adults, with Florida also having the potential to be a huge market. According to Headset, a cannabis analytics company, recreational sales in Florida could reach between $4.9 and $6.1 billion in the first year of legalization. Despite all adversities, an optimistic outlook is emerging for the sector as discussions about a less strict federal rescheduling gain momentum. President-elect Donald Trump has signaled his willingness to support reforms, which could greatly benefit the struggling industry. According to ATB Capital Markets analyst Frederico Gomes, the reclassification of cannabis offenses at the federal level could compensate for the failed legislative changes in the referendum, especially as companies currently pay effectively over 70% in taxes due to tax treatment.