BofA On Cannabis Stocks: Bullish On Tilray, Canopy Growth, Bearish On Cronos

Valuation multiples for cannabis stocks are likely to expand over the next year as the U.S. government reaches milestones on the path to federal cannabis legalization, according to BofA Securities.

The Cannabis Analyst: Heather Balsky reinstated coverage of four cannabis stocks in separate notes:

• Tilray Inc TLRY with a Buy rating and $23 price target.
• Canopy Growth Corp CGC with a Buy and a $36 price target. 
• Aurora Cannabis Inc ACB with a Neutral rating and $9.60 price target. 
• Cronos Group Inc CRON with an Underperform rating and $7.50 price target.

The Cannabis Thesis: Tilray’s valuation multiple is below where its peers — namely Canopy Growth, Aurora, and Cronos Group — are trading, Balsky said in the initiation notes.

Tilray: The merger between Tilray and Aphria could close in the second quarter of 2021, the analyst said.

“We anticipate multiple expansion as this potential merger is likely to enable the combined company to build scale, gain efficiencies, combine their cash position, and deliver consistent positive EBITDA,” the analyst said. 

Canopy Growth: “In our view, the current stock price does not fully value its long-term potential. We think its balance sheet, mgmt team and partnerships position CGC well to enter the US if there is federal legalization,” Balsky said. 

See also: How to Buy Canopy Growth (CGC) Stock

Aurora: The analyst said she expects Aurora’s valuation upside to lag peers.

“Our sales outlook is 5% below the Street and Aurora lacks some of its major peers’ advantages for eventual US entry,” she said. 

“ACB isn’t the best stock to leverage the US opportunity,” Balsky wrote.

Cronos Group: “Cronos stands out from peers for its robust cash position ($1.3bn), partnership with Altria MO, and outsized investments in science and innovation (44% sales),” the analyst said. Yet the company’s share price already reflects these positives and there seems to be “downside risk to valuation as the company continues to burn cash,” she said. 

Photo courtesy of Tilray.