If you think the broad-based stock market is on fire, then you obviously haven’t been paying close enough attention to the legal cannabis industry. This year alone, marijuana stocks have run circles around the S&P 500 in terms of total return, and marijuana’s “Big Three” — Canopy Growth, Aurora Cannabis, and Cronos Group — have all delivered huge quadruple-digit-percentage gains since the beginning of 2016.
And yet despite this optimism and the expectation from Wall Street that worldwide sales of weed could hit between $50 billion and $75 billion by the end of the next decade, Wall Street remains notably hesitant on pot stocks…
Even though analysts have bestowed a number of buy- and hold-equivalent ratings on major marijuana stocks, upgrades have been especially few and far between. Back in August 2018, Canaccord Genuity moved Cronos Group from sell to hold and Canopy Growth from hold to speculative buy. Then, on April 22, 2019, GMP Securities upgraded Canopy Growth to a buy following the announcement that it had secured the rights to acquire Acreage Holdings if the United States ever legalizes recreational marijuana. Until this month, these three upgrades were it for the entire industry.
At the other end of the spectrum, downgrades and sell ratings have freely flowed from Wall Street’s faucet. Cronos Group is currently the only pot stock with four sell ratings, and it’s received a number of downgrades to sell. Supply chain issues and ongoing losses have made skepticism sort of the standard approach for most investment firms.
The point being that Wall Street, while mostly optimistic on aggregate cannabis sales growth over the long run, remains leery of marijuana stocks and their valuations in the near term.
Wall Street actually upgraded a pot stock?
That’s what makes what I’m about to say all the more shocking: Wall Street recently upgraded a pot stock…and it wasn’t Canopy Growth, which is the typical go-to for most Wall Street investment banks.
Two weeks ago, Owen Bennett at Jefferies, one of the first analysts to issue coverage on a number of leading marijuana stocks in the industry, upgraded Tilray (NASDAQ:TLRY) to hold from sell, all while lowering his price target modestly to $57 a share from $61.
Why the upgrade if Tilray’s price target is being pushed lower? According to Bennett, who continues to remain cautious on Tilray in the short term because of supply chain issues impacting Canada’s pot industry, Tilray’s headwinds are now better understood. It’s this added bit of clarity that suggests its valuation now makes sense.
Interestingly enough, Bennett isn’t the only Wall Street analyst to feel this way. Aaron Grey at Alliance Global Partners initiated coverage on Tilray this week with a neutral rating (the equivalent of a hold), as noted by Barron’s. Grey pointed out in a note to his clients that the company appeared fairly valued below $50 a share (as of last week) and that Tilray’s “partnerships and management team warrants a premium to peers.” Grey also contends that Tilray’s Portugal production facility should…
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