‘A generational wealth opportunity’: 4 top Wall Street analysts share the cannabis stocks to buy now
Cannabis reform is one of the hottest topics in state legislatures and on Capitol Hill this year.
A trio of powerful Democrats, led by Senate Majority Leader Chuck Schumer, introduced a proposal to legalize marijuana federally on Wednesday, though it's unlikely to become law.
Still a slew of states, including New York, have legalized cannabis this year, fueling the industry.
Investing in cannabis now is a "generational wealth opportunity," according to Owen Bennett, a Jefferies analyst who recently began covering US cannabis companies. He said operators will benefit from the march of legalization and M&A.
As with any nascent industry, there are dozens of players — and it can be difficult to figure out which companies to bet on.
Wall Street analysts for the most part favor US cannabis companies, known as multi-state operators or MSOs, over their Canadian counterparts. The US companies, like Curaleaf and Green Thumb Industries, cultivate and sell marijuana in multiple states.
The industry is complex. MSOs aren't able to list on major US stock exchanges, so they're forced to trade on the Canadian Securities Exchange, and over-the-counter. As well, many institutions are locked out of the industry — meaning that these stocks are thinly traded relative to companies of a similar market value, and they have to contend with a high cost of capital, rapidly shifting regulations, and illicit market competition, among other roadblocks.
Still, Wall Street's top cannabis analysts say there are companies that have separated themselves from the pack, based on their strong management teams and assets in lucrative state markets.
Now is a good time to buy, given the recent pullback in the sector, analysts from JMP Securities said in a Thursday note.
"[W]e view the valuation reset and the consolidation of gains as healthy, but at the same time, creating an attractive longer-term entry point," the analysts said.
Here are the four stocks that analysts picked as their favorites to invest in now:Cowen: Green Thumb Industries
Company: Green Thumb Industries (GTBIF)
Price target: $45
Why it's a top pick: Azer has had the Chicago-based Green Thumb, or GTI, as her top cannabis stock pick for some time.
"The company has demonstrated the ability to drive strong top and bottom line performance from its core markets, which includes multiple consecutive quarters of positive net income and FCF (free cash flow)." Azer said in a June 10 note.
Azer touted GTI's market-leading positions in Illinois and Pennsylvania, as well as the company's early presence in New Jersey and New York. She also highlighted the company's "best-in-class" management team.
GTI is one of the few cannabis stocks that has garnered interest from institutional investors.
In 2018, hedge fund legend Leon Cooperman told Insider he had purchased stock in GTI. And more recently this year, GTI raised $100 million from an undisclosed institution.
Cantor Fitzgerald: Curaleaf
Company: Curaleaf (CURLF)
Price target: $26.50
Why it's a top pick: In a May 11 note, Cantor Fitzgerald analyst Pablo Zuanic said that Curaleaf is his top pick among MSOs.
Curaleaf acquired European cannabis giant EMMAC Life Sciences earlier this year, helping the firm expand throughout Europe. Curaleaf has over 100 stores across the US.
"In our view, Curaleaf's US scale (largest) and now its international optionality are worthy of a premium," he said in the note.
In March, Zuanic said that New York's transition to a recreational market would give a boost to five cannabis companies, including Curaleaf.
He added in a Thursday note that the recent pullback in cannabis stocks is a good buy-low opportunity.
Jeffries: Cresco Labs
Company: Cresco Labs (CL)
Price Target: C$36
Why it's a top pick: In a July 7 note, Jefferies analyst Owen Bennett initiated coverage of seven US cannabis companies.
Bennett named Cresco Labs as his top pick, citing strong branding and a solid presence in California.
The analyst's price target was more than double where the stock was trading before he published the note.
"Preferred names are those better aligned for success in a likely longer-term industry structure," Bennett said. "On this basis, Cresco, Curaleaf and Green Thumb stand out. Our top pick is Cresco, ticking most of the required boxes and its relative valuation looks most compelling, in our view."
Viridian Capital Advisors: Ayr Wellness
Company: Ayr Wellness (AYRWF)
Price target: $42
Why it's a top pick: Viridian analyst Jonathan DeCourcey said Ayr Wellness trades at a discount, considering its track record, and named the company his favorite among US MSOs, in a July 1 note.
DeCourcey said that the company has made strategic acquisition deals that will pay out soon and has cash on hand to make more deals to expand. The core markets in which the company operates – Massachusetts in particular – also offer attractive room for growth.