U.S. cannabis stocks jumped on Wednesday after an analyst at Jefferies called them “a generational wealth opportunity.”
Analyst Owen Bennett launched coverage on seven U.S. growers with Buy ratings: Curaleaf (CURLF), Green Thumb Industries (GTBIF), Trulieve Cannabis (TCNNF), Cresco Labs (CRLBF), Columbia Care (CCHWF), TerrAscend (TRSSF), and Ayr Wellness (AYRWF).
Columbia Care stock popped 5.6% on Wednesday, Cresco shares were up 2.7%, Trulieve stock was up 1.7%, and Ayr Wellness stock closed up 1.2%. Curaleaf stock was up 0.3%, while Green Thumb shares were up 0.1%. Of the group, TerrAscend stock was the only one that fell, closing down 5.8%. The AdvisorShares Pure US Cannabis exchange-traded fund (MSOS), which provides exposure to U.S. growers, was up 0.6%.
Bennett thinks U.S. industry annual retail sales of $17.2 billion in 2020 will reach $36 billion by 2025, and $64 billion by 2030. He thinks growth will be driven by conversion from the illicit market to the legal market, the increasing normalization of cannabis use, and the disruption of the alcohol and pharmaceuticals industries. He assumes national penetration can hit 30%, with annual spending per user at $1,750—compared to Colorado at $2,683 and alcohol at $1,378. Such assumptions equate to a market of $172 billion, according to Bennett.
Bennett argues investors should focus on companies with the greatest geographic reach in key U.S. states, a sizable presence in California, growing national brands, a broad portfolio of product segments, and existing market share strength, as well as a strong share of wholesale business. With that all in mind, Cresco Labs is his top pick. He thinks Curaleaf and Green Thumb also score highly.
“The name we would be most cautious on over the next 12 months is Trulieve,” Bennett wrote. “Despite its relatively poor ranking, its valuation is not too dissimilar, and in some cases better, then higher ranking peers.”
Bennett notes that institutional investors have mostly shied away from U.S. growers because cannabis is illegal at the federal level. He expects legal protection to come from lawmakers in the next 12 months, pointing to bipartisan efforts in Congress. The most notable among such lawmakers is Senate Majority Leader Chuck Schumer, who has discussed efforts to de-schedule cannabis as a controlled substance.
Bennett isn’t alone. Barron’s pointed to upside for U.S. growers Curaleaf, Green Thumb and Trulieve on April 30. Since publication, Curaleaf stock is up 4% and Green Thumb stock is up about 11%. Shares of Trulieve are down 3.7%.
Write to Connor Smith at [email protected]
