Where To Hide In The Cannabis Space

The market is reeling from COVID-19 and seems to have little patience for the minute movements of marijuana. But one analyst sees great potential in cannabis.

The Analyst

Cantor Fitzgerald analyst Pablo Zuanic maintained Overweight ratings on Trulieve Cannabis Corp TCNNF TRUL with a $30 price target and on Aphria Inc APHA with a C$11.50 target.

“We realize that in the current context, cannabis/CBD stocks would not be at the top of the list for investors regarding places to hide or even bottom fishing,” Zuanic wrote in a note, countering that Trulieve and Aphria are lower risk and attractively valued after underperforming before and during the crisis.

The Trulieve Thesis

Trulieve claims the highest U.S. margins in earnings before interest, tax, depreciation and amortization (EBITDA). For this and other reasons, Zuanic prefers Trulieve to Cresco Labs CRLBF — his only other Overweight U.S. cannabis stock. The company boasts about 50% of the Florida market, where it gleans more than 98% of its revenue.

“While FLA will not go rec[reational] for now (rec will not be in the ballot this November), the med[ical] market continues to grow at a robust pace,” the analyst wrote, estimating 25% sequential revenue growth.

He considers the company’s levered debt manageable.

The Aphria Thesis

Zuanic considers Aphria superior in valuation, balance sheet, cash flow and underlying trends. By his assessment, the company is poised to increase cannabis contributions toward EBITDA and reduce cash burn with the activity of its Diamond facility.

“The company has taken a prudent approach to M&A, but in the current context we would expect it to tap into opportunities that can improve capabilities and or open new growth platforms,” he wrote.

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