Cannabis Analysts From Piper Sandler, Jefferies, Cowen On Their Favorite Companies, Investments

Some of the most high-profile cannabis analysts shared their insights in a thrilling discussion about trends, strategies and forecasts at the Virtual Benzinga Cannabis Capital Conference.

Alan Brochstein, the founder of 420 Investor and New Cannabis Ventures, led the discussion.

Cresco, Green Thumb Among Analyst Favorites: Michael Lavery, senior research analyst at Piper Sandler, equated cannabis to other industries where the "winners" are those that enjoy a competitive advantage against their peers.

What’s special about cannabis, as opposed to other consumer packaged goods industries, is that brands alone are not enough to drive pricing power.

In cannabis, scarcity is the golden variable, Lavery said. 

“Operators in limited-licensed U.S. states would stand out to us. Certainly that would be names like Cresco CRLBF CL and Green Thumb GTBIF GTII.”

Vivien Azer, managing director and senior research analyst at Cowen, agreed on Green Thumb, highlighting prudent management and communication about its business.

“The capital discipline has been exceptional at the company. They’ve really pursued a growth-focused strategy. They have taken very good care with their balance sheets, having raised capital last April before the capital markets got very tight.”

Most importantly, it’s the way Green Thumb communicates with the street in terms of expectation management, said Azer.

The landscape in Canada is less clear for the analysts. 

Owen Bennett, a tobacco and cannabis analyst at Jefferies, said he’s amazed at the amount of Canadian licensed producers that “didn’t do the basics right.”

For consumer product goods companies, this means forming segmented brands, understanding what the consumer wants and keeping control of costs, the analyst said. 

Aphria and Organigram stand out among others in this respect, he said. 

Where Cannabis Is Now And Where It's Headed: “Cannabis is proving to be quite resilient,” said Azer. 

The COVID-19 pandemic has greatly affected the overall economy, but consumer patterns around cannabis are showing healthy results, and evidence suggests that there could be a step up in per-capita consumption, she said. 

Lavery compared today's cannabis industry to internet companies after the dot-com bubble burst of the early 2000s. The market “resets” after the bubble bursts, and the industry will divide into many subsectors, he said. 

“Within each of those [subsectors] I think you’ll see different winners emerging, not necessarily ones that are going to hold the top position forever. I think we’re starting to see some of that separation now.” 

Institutional Investments In Cannabis: Bennett said recent cannabis sales have been driven by retail and “FOMO” rather than true market fundamentals, so he advises cautiousness about the rise in sales.

“However, I think to go really bullish you need to see increased [long-term] institutional investment. With that I’m actually more optimistic than I was 12 month ago,” said Bennett.

Institutional investors are eyeing the cannabis industry with more interest, according to Azer.

This interest tends to favor companies that are already profitable and have become so consistently, like the aforementioned Green Thumb Industries, Cresco and Aphria APHA, she said. 

Piper Sandler’s Lavery also said the cannabis landscape is attracting more institutional investors.

“Once you’ve seen some of these winners and a separation in how companies are performing, it makes it a lot easier to feel more comfortable investing in a space that you feel like you can get your hands around how it’s going to play out and how companies are positioned,” the analyst said. 

Strategic Investments From Other Industries: Brochstein raised the question of strategic investments from big players in pharma, tobacco and alcohol. Aside from the Altria MO/Cronos CRON and Constellation Brands STZ/Canopy Growth CGC deals, no major investments have been made from these industries into cannabis.

In Brochstein's view, these investments have not performed well so far for Altria and Constellation Brands. 

Bennett said that more investments from these sectors are bound to happen in the medium term, with some of these companies already putting together cannabis working groups to analyze the market.

“There is no rush. [These sectors] have seen what happened with Constellation, with Altria and therefore they’re careful of actually rushing in,” said Bennett, who said it’s crucial to consider the motivations these sectors might have for entering cannabis.

“For alcohol and pharma, obviously, there’s a risk of disruption. In the case of alcohol, it’s probably more near-term disruption whereas [with] pharma it’s probably a few years out," he said. 

In the case of tobacco, it's more a growth opportunity than a disruption risk, Bennett said.

Lead image by Ilona Szentivanyi. Copyright: Benzinga.