Cannabis Stocks Plunged After Florida Legalization Failed: Rational Reaction Or Market Overreach?

The cannabis market is facing heightened volatility post-election as investor concerns mount over political uncertainty and the fallout from Florida's failed legalization vote, leading to significant selloffs in top U.S. and Canadian cannabis stocks. Adult-use legalization was also rejected in North Dakota and South Dakota.

Given this setup, investors might be asking: was the post-elections selloff an overreaction or a rational market adjustment?

Experts analysts from Viridian Capital Advisors weighed in on the debate.

Market Meltdown: Was The Sell-Off Justified?

In the wake of Florida’s failed ballot vote for adult-use cannabis, the market cap of 31 publicly traded cannabis companies fell by $2.6 billion from Friday, November 1 to Wednesday, November 6.

Florida’s medical cannabis market alone is projected to reach $2.1 billion in sales by 2024.

If adult-use legalization had passed, it could have effectively doubled sales, adding another $2.1 billion.

Applying a conservative 30% EBITDA margin to these potential sales would yield an EBITDA loss of $630 million.

Using a 5x multiple, also considered conservative, the projected decline in market cap would be around $3.15 billion — suggesting that the $2.6 billion markdown might not have been as exaggerated as it seems.

However, there's a caveat: not all companies on the list have operations in Florida, though 81% of the market cap is held by firms actively operating there.

A greater concern is the broader impact on the industry's growth narrative.

Read Also: Cannabis Reform Stumbles In 2024 Elections: A State-By-State Breakdown As Stocks Take A Hit

Some Earnings Added Pessimism

For Viridian Capital Advisors, in addition to the disappointing ballot results, earnings reports from major players including Trulieve (OTCQX:TCNNF), TerrAscend (OTC:TRSSF), Curaleaf (OTC:CURLF), Cannabist (OTCQX:CBSTF) and GTI (OTC:GTBIF) have compounded concerns.

The results revealed significant misses, even against lowered expectations.

Aggregate revenues for these companies are projected to be down 0.4% year-over-year and 1.1% sequentially. The decline in EBITDA is 2.2% year-over-year and 4.2% sequentially.

The failed vote has undeniably stretched the industry's growth timeline, leaving investors to weigh potential catalysts against a stark present reality.

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