All 10 of the largest publicly held marijuana multistate operators posted double-digit revenue growth in the quarter ended June 30, but stock prices remained weak as investors grow impatient with the slow pace of federal marijuana legalization efforts.

Four of the largest five publicly held MSOs actually made a profit in the quarter, with Florida-based Trulieve Cannabis leading the way with $40.9 million in earnings.

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Quarter-over-quarter revenue increases ranged from 10% for TerrAscend to 56% for Ayr Wellness. Both companies are based in New York, and part of a group of aggressively expanding MSOs.

“The fundamentals remain strong,” said Matt Karnes, founder of GreenWave Advisors, a New York-based cannabis financial research and consulting firm.

“The large players are continuing to execute consistently.”

“Q2 earnings for MSOs as a group were fantastic,” Dan Ahrens, managing director and chief operating officer of Maryland-based AdvisorShares, told MJBizDaily via email.

However, Karnes, Ahrens and others noted that despite the strong earnings season, marijuana stocks continue to be soft.

Ahrens is portfolio manager of AdvisorShares Pure US Cannabis ETF. The fund’s largest holdings include Massachusetts-based Curaleaf Holdings, Trulieve, Illinois-based Green Thumb Industries, Chicago-based Cresco Labs and Ayr Wellness.

Since mid-March, the fund, traded on the New York Stock Exchange Arca under the symbol MSOS, has declined by more than a third.

A number of individual marijuana MSOs have experienced even steeper stock price declines during that period. For example, Trulieve shares have declined nearly 50% to less than $27 a share since mid-March.

“There’s a huge but obvious disconnect between stock price performance and growth of revenues and earnings,” Ahrens wrote.

“MSO stocks have been lousy for the last six months or so for a host of reasons unconnected to earnings.”

Karnes said lack of progress in federal marijuana legalization is “keeping these stocks in limbo.”

Ahrens concurred: “Short-sighted retail investors expected federal reforms in cannabis laws.” But, he added, such reforms “are now dragging out for an unknown period of time.”

Ahrens wrote that two additional factors are suppressing industry share prices:

  • Restricted access to MSO stocks by certain brokerage firms, wire houses and big banks because of marijuana’s federally illegal status.
  • Low trading volume. MSO stocks, which trade on over-the-counter exchanges in the U.S., don’t generate the trading volume that Nasdaq- or New York Stock Exchange-listed stocks have. The lower market float can make a stock more vulnerable to an attack by short sellers. At the same time, solid buying pressure could cause the stocks to rebound sharply.

The quarter saw the following trends:

  • Curaleaf is the largest MSO by revenue in the U.S. marijuana industry, with Green Thumb, Trulieve, Cresco and Verano Holdings clumped together in the top five. Trulieve will rival Curaleaf as soon as it completes its all-stock acquisition of Arizona-based Harvest Health & Recreation.
  • A second tier of MSOs by size continues to rise, led by Harvest and New York-based Columbia Care. That tier also includes rapidly growing players such as Ayr Wellness, Massachusetts-based Ascend Wellness and TerrAscend. But all those companies experienced at least a $10 million bottom-line loss in the second quarter as most continue on an aggressive expansionary path. “There’s going to be ebbs and flows as companies continue to make acquisitions and integrate those acquisitions,” Karnes said.
  • The cost of capital continues to decline for MSOs. For example, Ascend Wellness secured a loan of $210 million at a 9.5% annual interest rate. The money will be used to finance a pending acquisition of MedMen’s New York license as well as to retire debt.
  • High-growth markets have attracted a flurry of interest from MSOs, both in terms of acquisitions and cultivation-expansion projects. Part of the focus is on the forthcoming recreational marijuana markets in New Jersey and New York. But the robust medical cannabis markets of Pennsylvania and Florida also have seen a surge of activity.

Here’s a look at the five largest publicly held MSOs (with largest revenues first), their focus and how they are viewed by equity analysts:

Curaleaf Holdings

While sales and operating margins grew in the quarter, Curaleaf was the only one of the largest five MSOs to experience a bottom-line loss, of $9.8 million.

Pablo Zuanic, an equity analyst for New York-based investment banking firm Cantor Fitzgerald, attributed that loss to a drain in operating cash as Curaleaf builds its inventory in anticipation of the launch of medical cannabis smokable flower sales in New York and the development of East Coast recreational marijuana markets.

In addition to New York and New Jersey, Curaleaf has cultivation expansion projects underway in Arizona, Florida and Pennsylvania, according to Zuanic.

Curaleaf also continues to expand its retail footprint and has plans to add stores in Arizona, Florida, New Jersey and Pennsylvania.

The company plans a significant expansion in Florida, where Curaleaf said it will expand from 37 stores currently to 60 by year-end 2022. That should boost Curaleaf’s market share substantially from roughly 15% today.

Green Thumb Industries

Part of the company’s growth in the second quarter was driven by new capacity in Illinois, Zuanic said.

Additional capacity in New Jersey, Ohio and Pennsylvania should drive revenue growth by mid-2022. But growth in the second half of this year is more likely to be generated by retail, Zuanic reported.

“We expect Green Thumb to benefit from various tailwinds in the months ahead,” he wrote, listing:

  • The introduction of MMJ flower sales in New York and Virginia.
  • Recreational marijuana sales in Connecticut. He expects that market to launch before New Jersey and New York.
  • The eventual start of recreational marijuana sales in New Jersey – although that adult-use market might take some sales from the currently thriving Pennsylvania MMJ market.

Trulieve Cannabis

“Trulieve continues to showcase its profit prowess,” equity analyst Andrew Partheniou of Stifel GMP in St. Louis wrote after the Florida-based company posted its 14th consecutive quarterly profit.

Partheniou described Trulieve as having “cash cow status” in Florida, where it is the dominant leader with a 40%-plus market share.

Trulieve also is showing “early signs of wholesale success” in Pennsylvania, he wrote.

The company’s acquisition of Harvest Health also will give Trulieve a leading position in Arizona – including roughly 15% of the licenses in the state’s young adult-use market.

Florida might be a different story, as more competition enters.

“Trulieve had great earnings (in the quarter), but is facing some competitive pricing pressure in Florida,” Ahrens of AdvisorShares told MJBizDaily.

Cresco Labs

Cresco closed on its acquisition of Florida-based Bluma Wellness in the second quarter as it seeks to expand into that state’s massive medical cannabis market.

Bluma had been operating under “One Plant Florida” and had seven dispensaries open at the time, with plans to open eight additional outlets.

The dispensaries, which now number nine in operation, have been rebranded under Cresco’s “Sunnyside” name.

Since the end of the second quarter, Cresco struck an agreement to double its credit facility to $400 million. The proceeds from the senior loan will be used to retire its existing $200 million loan and fund targeted growth initiatives and expansion projects.

Verano Holdings

Verano went public earlier this year with a reverse takeover of an existing publicly held company after acquiring Florida-based Alternative Medical Enterprises.

At the time of the acquisition announcement, AltMed had become one of the fastest-growing operators in Florida, with 26 dispensaries and 220,000 square feet of cultivation space.

Verano’s AltMed unit now has 37 dispensaries in Florida, the same number as Curaleaf but far behind Trulieve’s 92.

Verano also is expanding in its core markets of Illinois, New Jersey and Pennsylvania and made an acquisition in July that will add Nevada as a core market.

Jeff Smith can be reached at jeff.smith@mjbizdaily.com.