Viridian Capital Advisors is one of the worlds top financial and strategic advisory firms in the cannabis industry. Benzinga recently had a conversation with the companys founder and president Scott Greiper and one of its analysts, Harrison Phillips, who shared some insight into the market.
The Cannabis Stock Index
Continue Reading Below
While Viridian does not recommend individual companies, its Cannabis Stock Index tracks a few biotech companies including GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) and Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE).
Those are by far, not only the highest valued by market cap [and price-value], but the ones that have the most evidence of clinical trial progress as they move along the FDA process, Greiper voiced.
We maintain that index not to recommend individual stocks, but to give us a sort of market intelligence as to which of the companies are attracting the most capital and which sectors are attracting the most capital and doing best in terms of stock performance, he continued.
A Cannabis ETF Coming?
When asked about the possibility of turning the Viridian Cannabis Stock Index into an ETF, Greiper said the firm would like to do something in the first half of next year."
The mitigating factor to anybody creating an ETF, let alone the Viridian Cannabis Stock Index, is the underlying liquidity of the component companies in the index, because indexes are constantly rebalanced, which implies selling or buying new shares of new component companies, he explained.
If the underlying companies dont have sufficient liquidity, and you are either selling out of a position or adding a position, you are going to affect the value of the stock. So, the challenge in creating a cannabis index is that, up until the last three months, particularly the three months leading into the November elections and the state voting on cannabis legalization [...] we didnt have the underlying liquidity that was sufficient to support a cannabis ETF.
However, this is beginning to change now, he supplemented, expounding that this is why Viridian is now pursuing an ETF.
After The Election
Since the election, the Cannabis Stock Index has shown a decline in volume. So, Benzinga asked about the move.
You really have to look prior to the elections; the volume was pretty steady throughout the year, but increased dramatically within the two months going into the elections, and a few weeks afterwards, Phillips answered.
We saw that increase in volume as investors making bets on the public cannabis stocks in anticipation for the results that were going to likely come out of those November elections. Following the elections, we saw a little bit more buying in, as our index went up a little bit [...] but then we saw some profit taking, and a decline in volume, he explicated.
However, investors that got in a bit later did not seem to be taking profits, but rather looked like they were holding on to the securities they got into a little bit later, in anticipation of growth going into 2017, Phillips added.
It was the proverbial textbook buy on rumors, sells on news, Greiper supplemented. The anticipation, not just from public stock buyers, but from private companies and investors in the industry, to position themselves ahead of the November 8 voting, and most particularly California and Massachusetts, drove the increasing pace of capital raises, the increase in pace of M&A transactions, and the material increase in our index.
The M&A transaction and capital raises havent stopped. Other than the week of Thanksgiving, weve continued to set records in terms of number of announced deals and the size of announced deals, even through last week, the companys president concluded. What has slowed down is the underlying trading in the public stocks. It got quite rabid, so were starting to see a little bit of a normalization back to pre-election levels of liquidity. We are at higher levels than lets say in the summer, but not quite at the fluffy trading levels that we saw leading up to the elections.
Liked this interview? Check out our conversation with Blues Traveler's Brendan Hill, who explained why he believes big players will wait to enter the marijuana industry.
2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.