Though it may be hard to believe now, the marijuana industry was considered taboo just a short time ago. As recently as 2005, only a third of respondents in Gallup’s cannabis survey favored legalizing pot, and just a handful of U.S. states had legalized the use of medical marijuana. Further, no country in the world had even thought about legalizing adult-use pot.
Today, an all-time record two out of three Americans favor legalization, with 33 states having legalized medical weed and 10 also allowing adult-use consumption. To our north, Canada became the first industrialized country in the world, and only the second overall (behind Uruguay), to legalize recreational marijuana this past October. With the green wave pushing forward, global sales estimates from the few Wall Street investment banks that have initiated coverage of the industry are on the rise…
Three marijuana stocks that received the dubious sell rating from Wall Street
Of course, not every marijuana stock is getting a passing grade from Wall Street in the early going. Three pot stocks have received the dubious sell rating from Wall Street investment banks.
If there were sort of a cream of the crop of underperformance, at least in the eyes of Wall Street, it would be Canadian grower Cronos Group (NASDAQ:CRON), which received the equivalent of a sell rating from Jefferies and BMO Capital Markets and the equivalent of a hold rating from Cowen Group, arguably the pot industry’s biggest cheerleader.
Although analyst ratings typically have only a very short-term impact on a company’s share price, this is one instance in which I wholeheartedly agree with Wall Street’s analysis. Having referred to Cronos as the most overvalued of all pot stocks, I believe there are multiple reasons its share price could head significantly lower.
Arguably the biggest issue is that Cronos’ production simply doesn’t match up to that of its mid-cap and large-cap peers. Cronos’ joint-venture project (which’ll be complete by midyear), Peace Naturals, and its overseas grow sites perhaps have the potential to hit 120,000 kilos in peak annual output. Comparatively, investors could purchase a handful of growers yielding north of 100,000 kilos annually for less than a third of Cronos’ market cap.
Cronos Group is also valued very aggressively on a fundamental basis. This is a company that’s currently trading at more than 400 times next year’s profit consensus from Wall Street and that hasn’t done a particularly good job of…
Continue reading at THE MOTLEY FOOL