Demand for weed has “noticeably increased” as the coronavirus pandemic forces people indoors, an analyst said Thursday, adding that Canadian cannabis producer Aphria (APHA) was primed to gobble up more of the nation’s pot market in the process. Aphria stock and marijuana stocks jumped…
The analyst, Bank of America’s Christopher Carey, said Aphria had a big cash cushion. And he said that Aphria “could give investors defensiveness” that marijuana stocks should offer, in theory, as more medical customers try to get prescriptions and recreational customers hunker down and smoke up.
The assessment arrives after investors last year grew more concerned that North America’s biggest marijuana companies were running out of money, amid steep losses and overexpansion. But even as marijuana demand spikes, more companies are re-evaluating how they run their dispensaries in an effort to keep people safe amid the pandemic.
“In a new sector, where companies have had poor execution and strained balance sheets, underperformance is reasonable,” Carey said in a research note. “However, with cannabis demand accelerating, we see potential for APHA, amidst the recent pullback, to offer defensive growth exposure.”
He said Aphria’s cash on hand represented 53% of its total market value. And he said the company was gaining share, especially as its rivals struggle. Carey also said that Aphria was one of the few marijuana stocks offering glimpses of profitability. However, some of Aphria’s recent quarters of positive EBITDA — or earnings before interest, taxes, depreciation and amortization — have gotten a lift due to accounting adjustments.
Carey upgraded Aphria stock to buy from neutral. But he cut his price target on the stock to 3.44 from 6.13.
Aphria Stock Jumps, Marijuana Stocks Rally
Aphria stock surged 15% in the stock market today. But its IBD ratings remain weak. Aphria stock has an 18 Composite Rating and an EPS Rating of 11. Investor’s Business Daily encourages investors to focus on stocks with Composite Ratings in the 90s. But it advises against buying anything in a correction or severe sell-off.
In the meantime, investors can focus on stocks with rising relative strength lines. A rising relative strength line means a stock is outperforming the S&P 500. Stocks with relative strength lines can emerge as market leaders once investor sentiment rebounds.
Among other marijuana stocks, Tilray (TLRY) surged 28%. Aurora Cannabis (ACB) picked up 9.4%. Cronos Group (CRON) rose 5%. Canopy Growth (CGC) punched 14% higher.
Marijuana Stocks And Coronavirus
Thursday’s move higher for marijuana stocks comes as the coronavirus forces cities to close bars and limit restaurant service to keep the virus from spreading. More companies are telling people to work from home. MKM Partners analyst Bill Kirk, in a research note last week, said that “The vice of choice when alone is cannabis.”
But some dispensary operators have restricted service to customers as coronavirus cases rise. Canopy Growth this week said it would temporarily close all of its corporate-owned pot shops in Canada, but still allow online orders.
In the U.S., cannabis retailer MedMen (MMNFF) said this week in an email that it was evaluating its retail operations. Curaleaf (CURLF) said it was encouraging customers to use mobile ordering and delivery in states where the services were available.
Bigger Than 4/20?
Kris Krane, the founder and president of 4Front, which produces cannabis and also has a handful of retail shops in the U.S., said in an email that “nearly all of our stores have moved to online orders only, in order to limit customer and patient time inside the stores.”
And he said the company was offering curbside pickup in states that allow it so that customers could stay in their vehicles.
Krane said sales in some stores, on Monday, surpassed those on April 20. While he said 4Front’s stores over the past week saw a bump in demand, it appeared to fade over the past few days.
Matthew Nordgren, CEO of Arcadian Capital Management, an investment vehicle that focuses on cannabis, said…
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