On today’s Marijuana Market Update, I talk about Bright Green Corp.’s (Nasdaq: BGXX) quick rise and fall after recently entering the public market.
I also look at the state of medical cannabis in the U.S. and show you how it’s expected to grow in the coming years.
First, let’s look at the state of medical cannabis in the U.S.
The medical cannabis market in the U.S. is growing at a rapid pace:
The map above shows medical cannabis is now legal in 36 states and the District of Columbia.
The states marked in yellow indicate where CBD oil that uses THC as an ingredient is legal but medical cannabis is not.
The states in red are where it’s still illegal.
Medical Cannabis Has a Bright Future
Medical cannabis sales will continue to grow in the coming years:
A 2021 study by Brightfield Group found that the value of the U.S. medical cannabis market was $7.8 billion in 2020.
Brightfield Group expects that to jump 45% to $11.3 billion in 2025.
And one company is hoping to capitalize on that growth.
Bright Green Corp. is working with the U.S. Drug Enforcement Agency (DEA) to provide medical cannabis to companies for product development. And its stock just hit the Nasdaq back in May.
A Warm Welcome for BGXX
Bright Green, a Florida-based cannabis company, became the first American company that grows marijuana plants to trade on a major U.S. stock exchange.
It went public via a direct listing rather than an initial public offering (IPO).
With a direct listing, Bright Green didn’t issue any new shares.
Instead, it sold existing private shares — a much cheaper way to go public because Bright Green didn’t have to hire investment banks to underwrite or promote the offering.
The company is also working on a $300 million growing facility located in Grants, New Mexico.
Source: Bright Green Corp.
On June 28, Bright Green gave an update on the project, stating that it was on track to complete the 22-acre facility in August.
Once complete, officials said the next phase would include two 57-acre greenhouses used for cannabis research, cultivation and manufacture. Expect construction on those facilities to start next year.
Investors embraced this stock when it hit the trading floor:
The excitement was short-lived, as the stock crashed back down to Earth.
As of July 11, the stock’s price was $2.22 per share — a 95% fall from that May 2022 high.
Should You Buy BGXX?
Working with DEA-registered companies excited early investors, but Bright Green’s prospectus highlights the significant risks that it was candid about:
“We have a relatively limited history of operations, a history of losses and our future earnings, if any, and cash flows may be volatile, resulting in uncertainty about our prospects.”
First, there’s no operational history for the company.
Second, it operates within an industry that’s still illegal at the federal level. It admitted it wasn’t able to find competitive or economically viable insurance for its operations.
Bright Green also reported a cash flow of negative $1.7 million in 2021. That’s on top of operating cash of negative $513,000 in 2020.
So it will have to use cash reserves or raise debt to cover its operational cash losses.
While Bright Green has a memorandum of understanding with the DEA, the agency has not granted an official permit to the company to cultivate cannabis.
Bottom line: Bright Green has no real history, isn’t making any money and the basis of its operation — to provide cannabis to DEA-registered companies — isn’t even official yet.
It all adds up to this being a highly speculative business.
By going public via a direct listing, investors had to perform their due diligence before investing in the stock.
This proved to be the pitfall for investors who bought in early to Bright Green.
The lesson: Do your homework.
That’s all for me this week.
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Safe trading,
Matt Clark
Research Analyst, Money & Markets