At the turn of the century, if you had told somebody that recreational marijuana would be legal across many states in this country, they probably would have laughed. Nobody is laughing now as the industry continues to grow at a breathtaking pace. Currently, the District of Columbia and 11 states (Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington) have adopted the most expansive laws legalizing marijuana for recreational use.
Marijuana multistate operators have grown dramatically over the past few years, but a massive catalyst is right around the corner that could give the industry a giant boost. It could really be the tipping point for some of the bigger states, especially those on the east coast, and it is less than 100 days away.
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The November elections are coming up fast, and while a Democratic victory for the White House would seemingly be a very positive catalyst for the industry, the truly important votes will be in the various states where recreational marijuana will be on the ballot. In a new research report, Alliance Global feels the elections may provide a huge tailwind for the industry. The report noted this:
For the US, we view the November election as the most important upcoming catalyst. There are currently seven states that could have cannabis legalization on the ballot, including five states with potential measures to legalize adult-use cannabis. We view Arizona and New Jersey as the most notable potential adult-use states come November – making up over 5% of the US population on a combined basis. In particular, we will have our eyes focused on New Jersey where we believe the state could prove a domino to nearby states legalizing cannabis, including New York, Pennsylvania and Connecticut.
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While Canada is still a huge market for the industry, as recreational use is legal across the nation, it should be noted that the entire population of Canada is just over 37 million. That’s quite a few people, but the state of California alone has over 39 million residents, so breaking through in other large U.S. states will have a very large impact on sales. It should be noted that given the current turmoil in the nation, many states are looking for additional streams of revenue, and heavy taxation on the marijuana industry ranks right up there with gambling as a surefire way to generate money for state coffers.
It is also important to point out that multistate operators have expanded their product lines over the past five years. There are now many more ways for adults to ingest recreational marijuana. The old roll a joint, or use a bong or pipe, and smoke marijuana is not the preferred way for many people, especially as smoking as a whole has declined dramatically. So, the vendors have responded with gummy bears and candies that contain THC, in addition to cookies, crackers and other items. Plus, many users prefer vaping as an alternative to smoking, and that has proven to be a very successful addition to the product lines.
Of course, the biggest catalyst would be a change in federal law. Some reports have indicated that the leadership of the House of Representatives is moving toward holding a floor vote on a comprehensive federal cannabis legalization bill in September. While it is probable a vote could pass in the House, at least for now, the consensus is it would not make it through the Senate. While the coronavirus pandemic has hampered legislative efforts on a wide range of issues, sources in the marijuana advocacy world say that a floor vote of the MORE Act is now being planned for September, according to published reports.
Some additional reports from advocacy groups indicate that while former Vice President Joe Biden allegedly is opposed to adult-use legalization, in politics things can turn on a dime and that opinion could easily change. It has been discussed that passage in the House could put some pressure on their colleagues in the Senate.
Another potential plan is called the STATES Act, which stands for Strengthening the Tenth Amendment Through Entrusting States. That bill would allow states to set their own marijuana policies and guidelines without having the fear of federal intervention if national legalization is not approved until a later date. It also has been reported that the bill actually enjoys some support from President Trump.
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Here are three stocks with Buy-equivalent ratings that trade on U.S. exchanges for investors to consider.
Aphria
This was one of the few marijuana stocks that weren’t losing money. Aphria Inc. (NASDAQ: APHA) engages in the production and supply of medical cannabis. It operates through the following segments.
The Cannabis Operations segment produces, distributes and sells both medical and adult-use cannabis. The Distribution Operations segment’s operations are carried out through its wholly owned subsidiaries: ABP, FL Group and CC Pharma. The Business Under Development segment includes operations in which the firm has not received final licensing or has not commenced commercial sales from operations.
As of late last year, it had $500 million Canadian on the balance sheet and an additional $100 million Canadian raised from a strategic investor. On Thursday, Aphria posted $98.8 million net loss in the fourth quarter, missing analyst estimates. The company said its loss included a $64 million noncash asset impairment expense largely related to the COVID-19 pandemic at some of its international businesses. Despite the hit the shares took, both CIBC and PI Financial raised their price targets on the company after the report.
Cantor Fitzgerald has an Overweight rating on the shares and just raised its price target from $10.50 to $11.00. No Wall Street consensus target was posted. Aphria stock closed Thursday’s trading at $4.92 a share.
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, as well as sells vaporizers, consumable vaporizer accessories and herb mills for using herbal cannabis products. It also operates CanvasRX, a network of cannabis counseling and outreach centers, and it provides cannabis analytical product testing services.
Cantor Fitzgerald has a $21 U.S. price target, but no consensus target was posted. Aurora Cannabis stock closed at $10.54 on Thursday.
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Cronus
This global cannabis company had a major international company take a large position late in 2018. Cronus Group Inc. (NASDAQ: CRON) was founded in 2012 and is based in Ontario, Canada. It has a presence across five continents, and its principal activities are the production and sale of cannabis and cannabis-derived products in federally legal jurisdictions.
Back in December of 2018, Altria agreed to buy a 45% stake in the company for about $1.8 billion, a sign of the new world in which the tobacco company must compete. This strategic partnership provides Cronos with additional financial resources, product development and commercialization capabilities, as well as deep regulatory expertise, to better position the company to compete, scale and lead the rapidly growing global cannabis industry. The stake also gives Altria the option to increase to full ownership if it so chooses down the road.
The Outperform rating from Raymond James comes with a gigantic $13.52 price target. Again, no consensus target was posted. Cronus Group stock last seen trading at $6.65 per share.
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The bottom line for investors is that when the Pandora’s box for the industry and recreational sales was opened, it appears most likely it will never be shut again. While the huge dramatic moves some of the top stocks made a few years back when Canadian legalization was at the forefront may be history, there is good reason to add some of the top stocks in the industry to aggressive growth portfolios.
Top Gaining Stocks
Top Losing Stocks