Companies and Brands

Marijuana Breaks Through on Wall Street as Jefferies Starts Coverage

Lee Jackson

Published: February 25, 2019 12:50 pm

Last Updated: January 11, 2020 10:53 am

It was going to happen, and despite the fact that many of the top marijuana stocks that are based in Canada get coverage there, there has been little if any major Wall Street coverage in the United States. That has changed now as Jefferies, which is one of the most innovative and forward-looking investment firms, started coverage on nine major Canadian cannabis stocks Monday.

Needless to say, the marijuana industry now is sort of like the beginning of the dot-com era in the mid-1990s, as it is entirely possible that some of the companies that currently are in the mix could be long-gone five or 10 years from now.

While acknowledging that not all will be winners, Jefferies feels that the total legal market can reach a stunning $50 billion by 2029, up from $17 billion in 2019, which includes both medical and recreational marijuana in the United States, Canada and Europe. With the potential for marijuana-infused beverages in addition to edibles, vaping and smoking of the product, as the end of prohibition is completed some serious money is set to be made.

Since the Jefferies coverage is on Canadian stocks, the firm’s price targets are set in Canadian dollars, which cost about $0.76 American dollars. Therefore the targets are lower in American currency. In addition, not all the coverage stocks trade in the United States, so we focused on the companies that do.

Aurora Cannabis

This company has made a string of acquisitions to grow the scale of its overall business. Aurora Cannabis Inc. (NYSE: ACB) produces and distributes medical cannabis products. It is vertically integrated and horizontally diversified across various segments of the cannabis value chain, from facility engineering and design to cannabis breeding, genetics research, production, derivatives, high value-add product development, home cultivation, wholesale and retail distribution.

The company’s products consist of dried cannabis and cannabis oil, CanniMed vegan capsules and hemp products. It sells vaporizers, consumable vaporizer accessories and herb mills for using herbal cannabis products, and it also operates CanvasRX, a network of cannabis counseling and outreach centers, and provides cannabis analytical product testing services.

Jefferies has a Buy rating and a C$12 price target (about US$9.12). The shares were trading near $7 in the noon hour on Monday.

CannTrust

This company could be an off-the-radar play for investors looking for a play with lower name recognition. CannTrust Holdings produces and distributes pharmaceutical grade medical cannabis products in Canada. It sells dried cannabis and oil extractions to the client based on the medication document provided by health care practitioner. The company has a partnership with Gold Coast University Hospital.

Jefferies has a Buy rating, with a C$15 price target (US$11.40). The over-the-counter shares were trading at $9.60 on Monday.

Canopy Growth

This is among the largest marijuana companies from a market capitalization basis, and one of the most well-known. Canopy Growth Corp. (NYSE: CGC) and its subsidiaries engage in growing, possession and sale of medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules and hemps. The company offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow and Foria brand names

The company also offers its products through Tweed Main Street, a single online platform that enables registered patients to purchase medicinal cannabis from various producers across various brands. The company was formerly known as Tweed Marijuana and changed its name to Canopy Growth in September 2015.

The Jefferies Hold rating comes with a price target of C$64 (US$48.64). The shares were trading around $44 on last look.

Green Organic Dutchman

This is a micro-cap play at which aggressive investors may want to take a swing. Green Organic Dutchman operates as a cannabinoid-based research and development company in Canada. It produces organic cannabis products, including organic dried cannabis, cannabis oils and edibles, fresh cannabis and seeds for medical applications.

In June of 2018, the company purchased 49.18% interest in Epican, a fully integrated Jamaican cannabis company with cultivation, extraction, manufacturing and retail distribution licenses. Significant progress has been made toward expanding cultivation, opening additional retail dispensaries and establishing a leadership position in Jamaica’s robust medical cannabis market.

Given the small size of this company, and the nature of the industry to date, it wouldn’t be outside the realm of possibility for this to be a takeover target.

The Jefferies Buy rating is accompanied by a C$6.10 Canadian target price (US$4.64). The over-the-counter shares were trading at less than $3.

While other brokerage firms have started some coverage on the marijuana industry, Jefferies appears to be the first major Wall Street firm to begin full-scale coverage. While legalization for recreational and medical use has sped up in recent years, to some there still remains the taboo of the fact that marijuana is a drug that is still illegal in the United States under federal law.

The fact of the matter is we should see an increasing number of states legalizing recreational use, as the consumer demand and the potential for huge tax windfalls are there. We remain at the beginning of an industry with incredible growth potential.