The U.S. election may be a major catalyst for marijuana stocks.
U.S. Election Day in November is just four months away, and presumptive Democratic presidential nominee Joe Biden has been surging in the polls. Democrats also apparently have a good chance of taking over both houses of Congress. Biden said earlier this year that marijuana “has to be, basically, legalized.” Regardless of how quickly Democrats would move on marijuana, cannabis investors likely see a Democratic sweep as the best shot at federal legalization. Here are seven marijuana stocks to watch that could get an election boost.
Curaleaf Holdings (ticker: CURLF)
Curaleaf is a vertically integrated multistate operator, or MSO, with more than 20 cannabis cultivation sites and a presence in 19 U.S. states. While investors wait for federal legalization, Curaleaf has been targeting states with large populations but limited cannabis licenses, such as Massachusetts, New York and New Jersey. Morningstar analyst Kristoffer Inton says Curaleaf’s vertical integration and focus on the U.S. market mean that investors should capitalize on his long-term U.S. projections of 25% annual growth for recreational cannabis and 15% annual growth for medical cannabis. Morningstar has a “buy” rating and $13 fair value estimate for CURLF stock.
Cresco Labs (CRLBF)
Cresco Labs is a leading U.S. cannabis MSO with a large market share in Illinois and Pennsylvania. Cantor Fitzgerald analyst Pablo Zuanic says growth trends in both states were “remarkable” in the most recent quarter given health crisis challenges. He projects that capacity expansion in both states will double first-quarter sales by the fourth quarter. By that time, Zuanic estimates that Pennsylvania, Illinois and California will account for more than 90% of Cresco sales from a major growth surge in the second half of the year. Cantor Fitzgerald has an “overweight” rating and $11 price target for CRLBF stock.
Trulieve Cannabis Corp. (TCNNF)
Trulieve Cannabis is a U.S. MSO with a sizable presence in Florida. Zuanic says the state’s medical cannabis patient count is up 20% so far in 2020, and flower volumes are up 80%. He estimates that the Florida medical marijuana market could be four times the size of the Arizona market. Cantor Fitzgerald has an “overweight” rating and $52 price target for TCNNF stock. But Zuanic says the stock could be in the $120 range by 2023 if Florida or the federal government legalizes recreational marijuana in the coming years.
Green Thumb Industries (GTBIF)
Green Thumb Industries is a U.S. cannabis MSO that has a wide geographic footprint, operating in a dozen states. Zuanic says the company’s most recent earnings report highlighted its improving fundamentals, including a well-capitalized balance sheet, fully funded 2020 expansion plans, opportunities for margin expansion and a deep penetration of markets in attractive states like Illinois and Pennsylvania. He says Green Thumb’s relatively low exposure to the troubled California market could set up the company to outperform MSO peers in 2020 cash flow and margins. Cantor Fitzgerald has an “overweight” rating and $15 price target for GTBIF stock.
Acreage Holdings (ACRGF)
Leading Canadian legal cannabis producer Canopy Growth Corp. (CGC) announced in 2019 a $3.4 billion conditional buyout of U.S. MSO Acreage Holdings contingent upon the U.S. lifting the federal ban on marijuana. Canopy and Acreage recently amended the terms of that deal to provide Acreage with an upfront $37.5 million cash payment and access to another potential $100 million in loans as it expands. Zuanic says the amended deal significantly decreased near-term risk for Acreage. Cantor Fitzgerald has a “neutral” rating and $2.90 price target for ACRGF, roughly a 50% discount to the new contingent buyout price.
Canopy Growth Corp. (CGC)
Canopy also benefited from the amended Acreage buyout, given that the new deal values Acreage at roughly a 65% discount to the original deal. Bank of America analyst Bryan Spillane says the amended deal is favorable for Canopy from a financial standpoint and gives the company a potential first-mover advantage over Canadian peers in the event of U.S. legalization. Acreage already has licensed Canopy brands sold in certain states, helping the company legally establish brand value ahead of federal legalization. Bank of America has a “buy” rating and $21.70 price target for CGC stock.
Scotts Miracle-Gro Co. (SMG)
Scotts Miracle-Gro isn’t a cannabis pure-play stock, but it would likely get a big boost from U.S. legalization. The company produces consumer lawn and gardening products and supplies U.S. cannabis hydroponic equipment. CFRA analyst Richard Wolfe says that with or without U.S. legalization, Scotts Miracle-Gro will continue to benefit from state-by-state legalization over the next decade. Because hydroponic equipment is legal, SMG doesn’t carry the risk level of some other stocks on this list. CFRA has a “buy” rating and $145 price target for SMG stock.
These marijuana stocks may rise on election results:
— Curaleaf (CURLF)
— Cresco Labs (CRLBF)
— Trulieve Cannabis Corp. (TCNNF)
— Green Thumb Industries (GTBIF)
— Acreage Holdings (ACRGF)
— Canopy Growth Corp. (CGC)
— Scotts Miracle-Gro Co. (SMG)
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