Canopy Growth (NASDAQ:CGC) and Tilray (NASDAQ:TLRY) are the picks of most of the top Cannabis Stock equity analysts and portfolio managers.
Scott Fortune is a Managing Director, Senior Research Analyst at ROTH MKM, specializing in AgTech and the Consumer Health and Wellness sector.
He brings 20 years of experience as an analyst and portfolio manager to his role.
Prior to joining ROTH MKM, he served as an Analyst and Portfolio Manager at Magee Thomson Investment Partners, where he covered micro, small, and large-cap funds.
He also gained experience at Duncan Hurst Capital Management.
Prior to his finance career, Mr. Fortune was Captain of the 1992 USA Volleyball Olympic Team and competed in three Olympics.
Mr. Fortune holds a B.A. in Economics from Stanford University and an MBA from the University of San Diego.
“To put it in perspective, little did we think that when we started coverage in early 2018 and were part of the early Tilray (NASDAQ:TLRY) IPO, that over five years later, there would be no U.S. federal cannabis policy reform movement.
But we believe this is still a U.S. state legalization story until eventual full U.S. legalization and a mature $100 billion legal cannabis industry similar to alcohol comes about.
The cannabis sector is a global industry with many different subsectors, but for now, the focus includes the U.S. multi-state operators, which are called MSOs, cannabis ancillary companies, which include equipment and service suppliers, products and distributors, CannaTech, what we call canna technology, canna specialty finance and REIT firms and specialty retail firms.
There’s also the Canadian LPs, which include mainly global cannabis companies, and hemp-derived CBD and cannabinoid medical pharma companies, as all part of the subsectors that we include in our coverage.
And while many of the names and the coverage can be listed on U.S. exchanges, U.S. plant-touching operators, retailers and growers still trade on secondary exchanges of the CSE and the OTC, limiting meaningful access to institutional capital going forward right now.
Currently, our coverage consists of cannabis companies with market caps primarily below the $750 million market cap level. But a lot of focus is on the top MSOs in the U.S. and the Canadian LPs, whose market caps are well above the $1 billion level.”
Cannabis stocks are waiting for the regulatory changes that will unleash their true potential.
“From a historical perspective, until this September, it has been an extremely challenging environment for the cannabis industry overall. In fact, over the past two and a half years — we keep marking the days — 931 days — since February 2021 highs. The industry’s challenges have been primarily due to regulations, onerous taxes, and pricing compression.
During the first half of 2023, shares in all segments within cannabis were off on average about 20%-plus, while compared to the S&P, it was up 17% and the Russell 2000 up 8% in the first half of 2023. There were a few cannabis names up in the first half, but primarily most were off significantly.
And there are some that have done well in the year, including names we don’t cover, like Glass House Brands (OTCMKTS:GLASF), which is a leading California greenhouse grower, and the multi-state operator TerrAscend (OTCMKTS:TSNDF) has had its recent shares uplisted on the Toronto Stock Exchange.
But overall, it’s been a difficult first half 2023, and that is following on the 2022 performance and returns, which saw the average cannabis stocks off about 65%.
From a historical perspective, this newly legal emerging industry of U.S. cannabis started in 2014. But it wasn’t really until 2018 when Canada legalized adult-use and more U.S. states began to add medical cannabis programs. And now, currently, there are 23 U.S. states that have converted to adult-use legal states.
Unfortunately, stock performance and returns to date in the industry have been dictated by legislation movement, regulatory easing, and strategic M&A, which all have been slow to occur.
We saw a significant run-up in the space in 2018 after Constellation Brands (NYSE:STZ) invested $5 billion with Canadian LP Canopy Growth (NASDAQ:CGC), and ahead of the adult-use legalization sales in Canada.
So, in fall of 2018, stock performance was very positive, but these have all been met with some news events driven by slow regulatory rollouts and oversupply fundamentals.
The next momentum, sentiment, and share appreciation we saw came in mid-2020 up until February 2021, when the Democrats took control of the executive and Congress branches.
Investors expected U.S. legalization, or at least reform of cannabis policy, to move forward. But that hasn’t happened and we’ve been stuck.
So the status quo on federal policy change has remained in place and challenging fundamentals driven by these slow state rollouts and price compression has resulted basically in an 80% drawdown for public cannabis stocks since the highs in early February 2021.
But the long-term catalysts for the industry remain in place, and that brings us to today’s new U.S. cannabis regulatory environment.”
Jason Wilson is a Cannabis Research and Banking Expert at ETF Managers Group, LLC.
With over 15 years of experience in the asset management, finance and structured product space, Mr. Wilson has a track record of bringing hard-to-access asset classes to market.
He has held leadership and senior positions at several leading financial institutions.
Most recently, Mr. Wilson was Senior Vice President at INFOR Financial Inc.
INFOR is a leading boutique investment bank based in Toronto, Canada, that has worked in connection with a number of companies in the legal cannabis industry, including acting as adviser to Canopy Growth (NASDAQ:CGC) in connection with entering into its strategic relationship with Constellation Brands (NYSE:STZ).
He also worked at the investment banking divisions of Société Générale, France’s third-largest bank, and at CIBC, one of the five largest banks in Canada.
While at Société Générale and CIBC, Mr. Wilson provided asset managers and financial institutions with various capital raising, financing and risk mitigation solutions and strategies.
Mr. Wilson has an LLB from the University of Western Ontario.
Prior to completing his university studies, Mr. Wilson was a member of the Canadian Forces and is a recipient of the Gulf of Kuwait Medal, awarded for his engagement in direct combat during the Gulf War in 1991.
“Canada is the home of the global cannabis players.
And because it’s federally legal in Canada and those companies tend to operate in other legal markets in Europe, they’re able to list not just on the Toronto Stock Exchange, but they’re also able to cross-list on NASDAQ or the NYSE.
They’ve also tended to receive investment from institutional investors, including alcohol beverage companies and tobacco companies that are looking to get into the cannabis space.
But from a pure market opportunity, and where we’re seeing the most cannabis-related revenue, it’s in the U.S. So even though cannabis is federally illegal in the United States, it’s by far the largest individual cannabis market.
And over 75% of the U.S. population is living in states where cannabis is legal at a state level, so there’s significant revenues being generated in the U.S.
So notwithstanding the legalities of it, the largest cannabis companies are domiciled in the U.S.
It just happens to be that they don’t trade on primary exchanges.
They trade over-the-counter in the U.S. because they’re listed on a tertiary exchange in Canada, the Canadian Securities Exchange.
And they have limited access to banking.
So if you look at an individual market, the largest opportunity is in the U.S. market.”
Get more detail on the cannabis stock sector by reading the complete interviews, exclusively in the Wall Street Transcript.
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