Will pot stocks ever recover?

In a July 23 report, Haywood Capital Markets analyst Neal Gilmer said he is revising estimates downward after a flat second quarter and a 27% year-to-date decline in the MSOS ETF, as fading optimism around federal reform and growing economic uncertainty continue to weigh on sentiment.

“There has been limited progress on federal reform with respect to rescheduling or SAFER Banking and, in our view, a relatively quiet rumour mill,” Gilmer said. “The macroeconomic backdrop has created some concern, with uncertainty regarding Trump administration policies resulting in a challenging business environment overall. Yesterday, Terrence Cole was confirmed as head of the Drug Enforcement Administration, so an update on the rescheduling process is expected in the near term. The process has been on hold since mid-January, leading to a first half of the year with little news flow or progress.”

He said the second quarter typically brings a modest rebound following the seasonally weak Q1, but ongoing pricing pressure made that unlikely this year. Although unit volumes are trending higher, weaker consumer confidence and tariff-related uncertainty are dampening pricing power. Most management teams guided for flat Q2 revenue, and 420-related promotions likely pressured margins further.

“Given the developments in the quarter, we have reviewed and updated our estimates across our U.S. cannabis coverage universe,” Gilmer said. “We are lowering our revenue and EBITDA estimates for most of our companies. In our view, many of our changes are relatively minor, but we felt it prudent to be modestly more conservative in our outlook given the uncertain health of the consumer. As a result, we are anticipating a fairly muted response to the quarterly financial results, outside of a company posting results well outside of expectations, either positively or negatively.”

Gilmer noted that investor sentiment remains tightly linked to federal policy developments. With Cole now confirmed as DEA chief, attention is turning to his plans for rescheduling—a stated priority. Investors are also watching for movement on the SAFER Banking bill and the hemp loophole from the 2018 Farm Bill. In the meantime, volatility is expected to remain elevated.

“The focus through the balance of the year will remain on the balance sheet, in our view,” he said. “While revenue trends, margins, and EBITDA will continue to be monitored, cash flow generation remains the top priority. The limited capital available to the sector has forced companies to prioritize that over everything else. Heading into 2026, there is a significant amount of debt that needs to be refinanced, and various companies need to demonstrate their ability to service that debt.”

Gilmer added that the sector still faces significant investment risks, with cannabis’s classification as a Schedule I substance in the U.S. remaining the biggest concern. He cautioned that actual market size could fall short of projections, while regulatory shifts or setbacks in medical research could further weigh on the industry.

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