Jefferies Bullish On Cannabis Stocks, Highlights Importance Of Medical And Recreational Exposure

More and more Wall Street analysts are weighing in on cannabis stocks in 2019, and Jefferies is the latest firm to take a bullish stance on the outlook for marijuana investors.

The Analyst

On Monday, Jefferies analyst Owen Bennett initiated coverage of nine cannabis stocks:

• Canopy Growth Corp CGC, Hold rating, C$64 target (US $48.69)
• Aurora Cannabis Inc ACB, Buy rating, C$12 target ($9.13)
• Cronos Group Inc CRON, Underperform rating, C$17 target ($12.93)
• Hexo Corp HEXO, Underperform rating, C$5.60 target ($4.26)
• Green Organic Dutchman Holdings Ltd TGODF, Buy rating, C$6.10 target ($4.64)
• CannTrust Holdings Inc CNTFF, Buy rating, C$15 target ($11.41)
• OrganiGram Holdings Inc OGRMF, Buy rating, C$10 target ($7.60)
• Emerald Health Therapeutics Inc EMHTF, Hold rating, C$4.30 target ($3.27)
• Flowr Corp FLWPF, Buy rating, C$5.70 target ($4.33)

The Cannabis Capital Conference is coming back to Toronto April 17-18!

The Thesis

Bennett projects the global cannabis market will grow from $17 billion in 2019 to $50 billion by 2029, with potential upside as high as $130 billion. His projections include estimates for 22 countries, including the United States.

Bennett anticipates the medical cannabis market and the recreational cannabis markets will diverge over time and address two distinct segments. He projects the medical market will grow from $8 billion in 2019 to $19 billion by 2029. Jefferies is expecting the recreational market to expand from $9 billion in 2019 to $31 billion by 2029.

Bennett said there will be significant overlap between early cannabis recreational products and established products such as vape pens, beverages and food. Since most of the cannabis companies covered don't specialize in production or manufacturing of these products, he said investors can expect the early industry leaders to land major partnerships with established companies in these fields.

“We expect a pricing ladder to be created in the recreational space, a bit like we see in wine or spirits, with the bottom end characterised by a focus on THC potency, and the top end about capturing the full entourage effect of cannabis, this effect driven by the interaction of hundreds of different compounds and requires the best quality inputs and much more care and time taken over growing and processing,” Bennett wrote in a note.

The medical marijuana industry will mature and look more like the pharma industry over time, he said.

Bennett said the primary risk to the cannabis bull thesis is ongoing research about the negative effects of the drug. Any news about negative health effects of marijuana would likely put legalization legislation on hold, eliminating the industry’s primary growth driver.

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