Best marijuana stocks to invest in Cannabis stocks got off to another difficult start to 2020, but better-than-feared first-quarter numbers…
Best marijuana stocks to invest in
Cannabis stocks got off to another difficult start to 2020, but better-than-feared first-quarter numbers and research from the University of Lethbridge related to potential health benefits of cannabidiol, or CBD, have lit a fire under marijuana stocks in recent weeks. The Canadian cannabis market may not have been the explosive growth opportunity many early investors had anticipated, but there is still tremendous long-term upside to the global marijuana market, especially if the U.S. lifts the federal ban on marijuana. Given the uncertain future, stock selection is critical in the marijuana space. Here are eight top analyst-recommended marijuana stocks to buy.
Aurora Cannabis (ticker: ACB)
Aurora Cannabis shares traded in April as low as 60 cents. Aurora also announced a $250 million equity facility that could dilute shareholders by more than 30%. But Cantor Fitzgerald analyst Pablo Zuanic says Aurora’s first-quarter earnings report was a much-needed indication of potential profitability. Aurora management also said the $250 million equity facility was merely a precaution and would likely not be used. Finally, Aurora announced a buyout of U.S. CBD company Reliva, suggesting that Aurora’s financial situation isn’t as terrible as some investors thought. Cantor Fitzgerald has an “overweight” rating and $19.29 price target for ACB stock.
Canopy Growth (CGC)
Canopy Growth is the largest legal cannabis company in the world by sales and market cap. Bank of America analyst Bryan Spillane says he is bullish on Canopy’s long-term outlook, given its leading market share, its solid balance sheet, and its financial backing and support from minority investor Constellation Brands (STZ). Constellation has installed two top executives as CEO and chief financial officer of Canopy, and the new management team has introduced aggressive initiatives to shore up the company’s finances and dial back expenses and excess capacity. Bank of America has a “buy” rating and $21.61 price target for CGC stock.
Aphria is Zuanic’s top stock pick among Canadian legal cannabis producers. The company has significantly outgrown its peers in the last two quarters. Also, given that Aphria has recently raised its net cash balance, Zuanic says it may be preparing to enter the U.S. CBD market with an acquisition similar to Aurora’s recent Reliva buyout. Aphria will continue to gain market share from its larger competitors, Zuanic says, and its price-to-sales valuation is much more attractive than market leaders like Canopy. Cantor Fitzgerald has an “overweight” rating and $6.82 price target for APHA stock.
Cronos Group (CRON)
Earlier this month, Canadian legal producer Cronos reported 180% year-over-year revenue growth but another large increase in operating losses. Oversupply in the Canadian market forced yet another $8 million inventory write-down, and management warned of additional charges ahead. But Morningstar analyst Kristoffer Inton says Cronos has an impressive $1.1 billion cash position and a deep-pocketed financial backer in minority investor Altria Group (MO). That strong balance sheet has allowed Cronos to focus on its international business, where prices and margins are higher than in Canada. Morningstar has a “buy” rating and $8.50 fair value estimate for CRON stock.
GW Pharmaceuticals (GWPH)
GW Pharmaceuticals is a biopharmaceutical company that specializes in cannabinoid-based drugs, including its federally approved epilepsy drug Epidiolex. Bank of America analyst Tazeen Ahmad says Epidiolex uptake has been “robust,” and its recent descheduling by the U.S. Drug Enforcement Administration has cleared a path for more prescriptions. Epidiolex is under review for label expansion to treat tuberous sclerosis complex, and Ahmad estimates that approval could come by the end of July. European Epidiolex launches are also underway, and GW has several promising pipeline projects. Bank of America has a “buy” rating and $230 price target for GWPH stock.
Trulieve Cannabis (TCNNF)
Trulieve Cannabis is a U.S. multistate operator, or MSO, based in Florida. Zuanic says U.S. MSOs have a more favorable near-term outlook than Canadian producers, given the oversupplied Canadian market. Trulieve reported 21% sequential revenue growth in the first quarter and added three Florida stores during the quarter. Zuanic says first-quarter margins were much higher than the company’s full-year guidance, despite costs related to the health crisis. The stock also trades at only about seven times its estimated 2020 earnings before interest, taxes, depreciation and amortization, or EBITDA. Cantor Fitzgerald has an “overweight” rating and $39 price target for TCNNF stock.
Green Thumb Industries (GTBIF)
Green Thumb Industries is a U.S. MSO headquartered in Chicago. Zuanic says Green Thumb has an attractive valuation relative to MSO peers, it has a bullish long-term fundamental outlook, and it will likely benefit from at least one major bullish catalyst in the near term. Those potential catalysts include new U.S. federal cannabis regulations, the November presidential election and possible legalization votes in New Jersey and Arizona. Green Thumb is well-capitalized and has significant penetration of attractive U.S. states as well as opportunities to expand margins over time. Cantor Fitzgerald has an “overweight” rating and $15 price target for GTBIF stock.
Cresco Labs (CRLBF)
Chicago-based MSO Cresco Labs has an attractive valuation relative to peers, Zuanic says. Its near-term growth plans are well-funded, and rapidly expanding capacity in Illinois and Pennsylvania should be a catalyst in the second half of 2020. Those two states, along with California, should be the primary growth drivers for Cresco this year and should account for about 80% of full-year sales, according to Zuanic. In addition, Cresco recently acquired operations in New York and Massachusetts and is entering the Michigan and Arizona markets. Cantor Fitzgerald has an “overweight” rating and $8 price target for CRLBF stock.
Best marijuana stocks to buy in 2020:
— Aurora Cannabis (ACB)
— Canopy Growth (CGC)
— Aphria (APHA)
— Cronos Group (CRON)
— GW Pharmaceuticals (GWPH)
— Trulieve Cannabis (TCNNF)
— Green Thumb Industries (GTBIF)
— Cresco Labs (CRLBF)
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Update 05/27/20: This article was published previously and has been updated with new information.