Some cannabis stocks could be on the comeback trail.
Cannabis stocks have had another rough year so far in 2020. After growth in the Canadian market disappointed in 2019, cannabis stocks have faced retail store closures, pricing pressures, inventory write-downs and demand headwinds. The S&P 500 has bounced back to a year-to-date gain of more than 5%, but the ETFMG Alternative Harvest exchange-traded fund (ticker: MJ) is down about 33% in 2020 and more than 50% overall since the beginning of 2019. Despite the underperformance, top cannabis stocks are poised for a comeback, says Cantor Fitzgerald analyst Pablo Zuanic. Here are Cantor’s seven top cannabis stocks to buy.
Aurora Cannabis (ACB)
Aurora Cannabis has been one of the worst-performing major cannabis stocks of the last two years because of its cash burn and dilutive equity offerings. The company recently warned investors that it will be recording a goodwill impairment charge of up to $1.4 billion in the fiscal fourth quarter related to past acquisitions. Zuanic says the company’s updated guidance implies that it lost market share in the most recent quarter, but he says Aurora should be a major long-term winner as Canadian legal producers enter a consolidation cycle. Cantor Fitzgerald has an “overweight” rating and $13.28 price target for ACB stock.
Canadian cannabis producer Aphria disappointed investors with its fourth-quarter earnings report. Revenue was up 18% from a year ago but just 5% from the third quarter. Like many other cannabis stocks, Aphria also recorded a nearly $50 million impairment charge during the quarter. Zuanic says the headline numbers may not have been particularly impressive, but Aphria’s 27% sequential recreational cannabis sales growth tripled the average growth rate of its Canadian peers. Earnings before interest, taxes, depreciation and amortization, or EBITDA, margins also surpassed competitors, Zuanic says. Cantor Fitzgerald has an “overweight” rating and $9.48 price target for APHA stock.
Cresco Labs (CRLBF)
Cresco Labs is a U.S. multistate operator, or MSO, and its biggest near-term growth driver will likely be Illinois, which legalized recreational marijuana in January. Cresco has a large presence in Illinois, and the state is projected to reach $1 billion in annual sales by 2024. Zuanic says Cresco’s 42% sequential sales growth in the second quarter was the highest growth rate among MSO peers, and its Origin House acquisition should help support market share gains. Cantor Fitzgerald has an “overweight” rating and $15 price target for CRLBF stock.
Curaleaf Holdings (CURLF)
Curaleaf is a U.S. MSO that operates in 23 states and is rapidly expanding its national footprint. In the second quarter, the company reported 142% revenue growth and 180% gross profit growth. Profits are hard to come by in the cannabis space these days, making Curaleaf’s 43% gross margins even more impressive. Zuanic says Curaleaf’s leadership position in many key states, coupled with its Grassroots acquisition, puts it in position to have a successful rollout of its Select brand and other nationally recognized brands. Cantor Fitzgerald has an “overweight” rating and $18 price target for CURLF stock.
Green Thumb Industries (GTBIF)
Green Thumb Industries is a U.S. MSO that operates 48 stores in 12 states, including California and Florida. In the second quarter, Green Thumb reported 167.5% revenue growth. In fact, the company generated more revenue in the first half of 2020 than it did in all of 2019. Zuanic says Green Thumb is the most profitable MSO, operating at nearly 30% adjusted EBITDA margins in the most recent quarter. Green Thumb also generated $33 million in operating cash flow in the second quarter. Cantor Fitzgerald has an “overweight” rating and $27 price target for GTBIF stock.
OrganiGram Holdings (OGI)
OrganiGram is one of the smaller public Canadian legal cannabis producers. The company’s third-quarter earnings report was disappointing for investors, given that revenue was down 27% compared with a year ago. At the same time, rising costs resulted in $18.7 million in EBITDA losses in the quarter compared with a $5.8 million profit a year ago. Zuanic says the post-earnings OrganiGram stock sell-off is a buying opportunity. He says OrganiGram has an attractive valuation, and recreational sales and product launches will help support the stock. Cantor Fitzgerald has an “overweight” rating and $3.79 price target for OGI stock.
Trulieve Cannabis Corp. (TCNNF)
Trulieve Cannabis is almost exclusively focused on Florida. In 2020, Trulieve has been the best performing of the seven cannabis stocks mentioned, gaining about 75% year to date on booming Florida demand. Florida’s licensed medical marijuana dispensaries received approval in late August to sell infused edibles, which Zuanic says will be a growth driver for Trulieve in the fourth quarter of 2020. Trulieve has opened seven new stores since the end of June, and Zuanic says the company will continue to dominate in Florida. Cantor Fitzgerald has an “overweight” rating and $59 price target for TCNNF stock.
Cannabis stocks to buy:
— Aurora Cannabis (ACB)
— Aphria (APHA)
— Cresco Labs (CRLBF)
— Curaleaf Holdings (CURLF)
— Green Thumb Industries (GTBIF)
— OrganiGram Holdings (OGI)
— Trulieve Cannabis Corp. (TCNNF)
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7 Cannabis Stocks That Cantor Fitzgerald Recommends originally appeared on usnews.com