The legal cannabis industry is budding before our eyes, and investors have clearly taken notice.
Though estimates vary wildly, a handful of Wall Street investment banks are counting on the global weed industry to crank out sales of $50 billion to $75 billion a year by the end of the next decade. With so much revenue to go around, there are bound to be some very big long-term winners in this space. The question, of course, is what stocks those winners will be…
These four brand-name marijuana stocks are getting all the attention
According to current market caps, investors seems to believe that Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), Tilray (NASDAQ:TLRY), and Cronos Group(NASDAQ:CRON) represent the best way to play the cannabis industry. Among growers, Aurora and Canopy slot in as Nos. 1 and 2, respectively, in terms of annual peak production, while Tilray and Cronos are liable to be well inside the top 10 in terms of annual aggregate production.
These are also companies that have done a good job of landing brand-name partners or pushing into overseas markets. Canopy Growth closed a $4 billion equity investment from Constellation Brands last November, Cronos Group closed a $1.8 billion equity investment from Altria earlier this month, and Tilray secured partnerships with Novartis‘ generic-drug subsidiary Sandoz and Anheuser-Busch InBev (NYSE:BUD) in December. Even though Aurora hasn’t yet landed a major partner, its presence in 24 total countries is unmatched by its peers.
With each of these brand-name pot stocks presumably offering their own blend of long-term advantages, choosing which one has the best outlook may not be easy. But, according to Wall Street, the choice is pretty simple. Since analyst coverage, including price targets, is now available for all of the major pot stocks, there’s one company that the Street believes stands out as the most attractive right now.
It’s definitely not this pot stock
Among brand-name marijuana stocks, Cronos Group is certainly not a Wall Street favorite, nor a company yours truly favors, either. Based on existing price targets, Cronos Group is projected by Wall Street to have 45% downside, which is probably why it’s one of the only marijuana stocks to have two underperform ratings.
On one hand, Cronos Group does now have a boatload of cash (more than $1.8 billion) to execute on its long-term business strategy, which presumably includes diversifying its product portfolio, pushing into international markets, making complementary acquisitions, and perhaps increasing its production capacity.
But this is also a company that, with maybe 120,000 kilos of peak production, is now only eighth in projected annual output in Canada. Investors could instead opt to buy OrganiGram Holdings, which has virtually the same projected peak annual output (113,000 kilos), with more than double the industry average yield per square foot, for a quarter of Cronos’ market cap.
Cronos has also done poorly in pushing into overseas markets. With the exception of distribution sites in Poland and Germany and grow farms in Australia and Israel, Cronos’ international presence is minimal compared to its brand-name peers. Without extensive overseas sales channels, Cronos could be…
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