Softened Sentiment As Investors Await Uplistings and Rescheduling

The Fall 2024 ATB Cannabis Investor Sentiment Survey returned responses from 22 institutional investors collected from August 29 through September 5. Highlights include: 

Softened Sentiment on MSOs
The sentiment towards MSOs has softened, with only 31.8% of respondents reporting being more bullish as compared to six months ago (down from 83.3% being more bullish over the prior six months at the time of our Spring 2024 Survey), and only 9.1% of respondents reporting increased net exposure to the sector over the past six months (down from 61.1% in our Spring 2024 Survey). The dampened sentiment does not surprise us: we believe investors were disappointed by rescheduling being delayed until next year. 

Waiting For Uplistings and Rescheduling
Similar to our Spring 2024 Survey, the majority of respondents cited up-listings to US exchanges as the top factor that would increase willingness to allocate more capital to MSOs (59.1% ranked this factor as #1, compared to 73.7% in the previous survey), followed by rescheduling to Schedule III (31.8% ranked as #1, versus 21.1% in the previous survey). While still meaningful, Florida legalization is seen as a less consequential factor. 

Rescheduling Expectations
In our Spring 2024 Survey, investors had assigned a probability of 76% for rescheduling in 2024; now, investors assign a probability of 62% to rescheduling over the next 12 months (remember, rescheduling is no longer a possibility in 2024). If it happens, the majority of investors (68.2%) believe that rescheduling would happen in H1/25, in which case most investors (53.3%) believe that the MSOS ETF would rise to a level above $20, reflecting a minimum growth of 191.5% from the current level of $6.86. 

Florida Spillover 
The deterioration in sentiment towards rescheduling might have spilled over to Florida. Respondents assign a 62% probability for Florida adult-use legalization, down from 69% in our previous survey. Given Trump’s comments on Florida legalization, we would have expected an increase in probability. We believe this mismatch indicates that Florida legalization is not being priced in at a reasonable probability, creating a buying opportunity for investors ahead of the November vote. 

Awaiting Excise Tax Reform in Canada
Sentiment towards Canadian cannabis has worsened, with 39% of investors becoming more bearish over the past six months (up from 29% in our Spring 2024 Survey). Accordingly, 17% of respondents reported a net decrease in exposure to Canadian cannabis names over the past six months (up from 7% in our Spring 2024 Survey). We think the worsening sentiment towards Canadian names is related to the failed excise tax reform, which did not materialize in H1/24 as some investors had hoped. Investors indicated that excise tax reform and regulatory changes in the US (allowing entrance into the US cannabis market) are the key factors that would incentivize a higher allocation towards Canadian cannabis.