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3 US Cannabis Stocks Prepare for Growth; Cantor says “buy”
In late 2018, Canada fully legalized cannabis nationwide for medical and recreational use. With the new Biden administration, the US is expected to legalize, or at least formally decriminalize, federally in the next four years. A precise schedule cannot be foreseen; Much will depend on the political make-up of Congress after the Georgia Senate runoff in early January. Right now, the legalization of cannabis in the US is something of a checkerboard pattern. Most states are at least partially legalized, with only Idaho and Nebraska holding out. Eleven states have fully legalized cannabis for all adults. The remaining 37 states have some form of partial medical use, and even Nebraska has decriminalized the substance. According to federal law, cannabis remains an illegally controlled substance. Cantor analyst Pablo Zuanic recently met with several executives in the cannabis industry and has come back with a few takeaways. “[The] Speakers believe that under a Senate controlled by Biden WH and Republicans, banking reform would be passed in early 2021 and included in a COVID bailout package […] In general, both speakers believe that measured progress in legislation is the best way to go at the federal level and expect a version of the STATES law (making cannabis legal at the federal level) to pass the Senate post in the next half-time (this In this case a 50-50 Senate split and a Biden WH could take place earlier. Other changes (expropriation, federal legalization) may take longer, “commented Zuanic. In advance of the possible changes, Zuanic also reviewed several cannabis stocks active on the American market. Using the TipRanks database, we determined the statistics for three such stocks, that have the classic “growth stocks” profile: lots of upside potential, recent strong stock appreciation and a strong buy rating from analyst consensus. Curaleaf (CURLF) We’re starting with Curaleaf, which has a market of $ 7.7 billion cap is one of the largest cannabis company in the world. Curaleaf is the world’s largest cannabis producer by sales. This position was strengthened by the acquisition of private competitor Grassroots earlier this year. Curaleaf operates in 23 states, including 30 processors, 88 pharmacies and 134 pharmacy licenses. Curaleaf builds its product on 22 cultivation areas with a total cultivation capacity of 1 , 6 million square feet. Curaleaf’s Performance This Year Both financial results and stock appreciation show the potential of the US cannabis market. The company had third quarter revenue of $ 193.2 million, up 59% sequentially and an even more impressive 164% year-over-year growth. The gains were driven by retail sales, which tripled year-over-year to $ 135.3 million, and wholesale sales, which increased 7-fold year-over-year to $ 45 million. While Curaleaf posted a net loss for the third quarter, that loss was just 1 cent per share, with analysts expecting double that. Curaleaf shares are up 85% year-to-date. While trading with the company has been volatile, it has regained all of the COVID-related losses from last winter. Commenting on this stock for Cantor, Zuanic said, “We believe the company’s economies of scale, its fundraising ability ($ 1 billion shelf) and continued business expansion and cultivation justifies a peer review bonus. [Curaleaf] did not provide a forecast for 2021, but the assumption is that it would see growth above the $ 1 billion annualized value that it is projected to exit in 2020. Supporting this bullish stance, Zuanic has given the stock an overweight (i.e. buy) price target of $ 20, suggesting 71% growth in 2021 is possible. (To see Zuanic’s success story, click here.) Overall, CURLF stocks are given a strong buy rating by analyst consensus based on an 8: 1 mix of buy versus hold ratings. The shares are trading at $ 11.69, and their average price target of $ 14.87 implies a one-year upside of 27%. (See Curaleaf stock analysis on TipRanks) Green Thumb (GTBIF) Green Thumb is a Canadian company that gained a foothold in the US market. While Canada’s statewide legalization regime offers an advantage over the fragmented one, the U.S. is a far larger market, with nearly 10 times Canada’s population. Green Thumb’s products include groceries, pre-rolled joints and vapes, and a range of CBD-infused wellness items for the home health market. In the past two months, the company’s market cap has increased from $ 3.3 billion to $ 4.6 billion. This growth in market capitalization was driven by massive stock appreciation. GTBIF bottomed in March at the height of the coronavirus crisis and has since increased 426%. Since the start of the year, the stock has risen 120%. That stock growth was in turn driven by strong trading through 2020. In fact, Green Thumbs top-line Q1 was posting quarterly losses at a time when many companies were growing 35% sequentially. Since then, GTBIF has further increased its sales growth. Third quarter revenue was $ 157.1 million, an increase of 131% year over year and 31% over the second quarter. Those strong sales resulted in earnings per share of 4 cents per share for the third quarter, derived from total net income of $ 9.6 million. In his note on Green Thumb, Zuanic reiterates its overweight (i.e. buy) rating and sets a price target of $ 35 to indicate 62 Zuanic writes, “We estimate that 2021 consensus sales estimates will go up at least 20% […] Given the profitability record, growth potential and franchise strength, we believe a valuation multiplier that is well above CPG shares is well deserved (CPG multiples are on average ~ 20x EBITDA). With federal eligibility still 2 to 4 years, the larger MSOs have a window before CPG or the larger Canadian corporations (the well-funded ones) can get any significant exposure to the US market. All of this should be considered when evaluating the stock. “Overall, Green Thumb has a unanimous analyst consensus rating, which shows that Wall Street shares Zuanic’s views. The stock has had no fewer than 8 buy ratings in the past few weeks. The average price target is $ 30.81 (see Green Thumbs Share analysis on TipRanks) Cresco Labs (CRLBF) Last but not least, Cresco Labs, a Chicago-based cannabis company with activities in the medical marijuana sector. The company markets its products in retail stores under the Sunnyside * brand with licenses in 6 states: Arizona, Illinois, Massachusetts, New York, Ohio and Pennsylvania. Cresco’s full line of products includes eight other brand names selling everything from buds to joints to food. Cresco is represented in 9 states and has all manufacturing facilities, retail licenses and operational dispensers. Cresco saw strong growth in 2020. Since the beginning of the year, the stock has been at 4 8% up Still three trading weeks before the end of the year. The profits completely erased the losses suffered at the start of the COVID pandemic. Presco posted sales of $ 153.3 million for the third quarter, a quarterly record for the company. The bottom line was $ 59 million higher than the previous quarter, representing a sequential profit of 63%. Revenue was driven by strong retail sales, which were $ 90.5 million for the quarter. Cresco’s quarterly earnings rose from $ 66.4 million in the first quarter, an increase of 130% year-to-date. Pablo Zuanic notes the company’s retail success in his note on the stock. He says, “Cresco has exceeded our above consensus sales estimate by 23% in terms of wholesale market share gains in states like IL, PA and CA and the continued outperformance of IL retail … The branded wholesale model (nearly 60% of sales versus 25%) Off In our view, depth and leadership (leadership in key states with over 20% wholesale IL / PA) could lead to a peer bonus over time. When projecting into the fourth quarter, we model at least the same share levels per country in the third quarter plus underlying market growth. In California, the company is gaining share per store (existing customers) and adding new retail customers. “These comments support Zuanic’s overweight rating (ie buy). His target price of $ 18 shows confidence in the 77% growth potential for the next year. With 5 buy ratings to offset a single hold, Cresco is our third cannabis stock to make a strong buy. With a current trading price of USD 10.12, the average target price of USD 14.61 results in an upward trend of 44% for one year. (See Cresco’s stock analysis on TipRanks.) To find great ideas for trading cannabis stocks at attractive valuations, visit TipRanks ‘Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock insights. Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.