Can the cannabis sector deliver the green? This is the question that has crept into the minds of investors given both the supply issues in Canada and high tax rates in the U.S. that have hampered the market.
Canadian regulators are partly to blame for supply shortages as they have been overloaded by cultivation, processing and sales license application backlogs, with black market producers happily filling any void. In the U.S., the cannabis sector has been bogged down by high tax rates, which can amount to 45% in some states. As a result, the high prices have driven many customers back to the black market.
That’s not to say that lucrative opportunities can’t be found within the budding cannabis space. Analysts remind investors that the industry is still in its early stages and needs time to mature. Canada was the first industrialized country to legalize marijuana, so a learning curve should be somewhat expected. Not to mention top investment firm, Stifel Nicolaus, has predicted global cannabis spending will reach $200 billion in the next decade, up from $10.9 billion in 2018.
Bearing this in mind, I set out to find the cannabis stocks whose growth narratives are still burning strong. Using the TipRanks Stock Screener, I was able to pinpoint five cannabis names that each have “lit” upside potential from the current share price.
Let’s dig in.
Acreage Holdings (ACRGF)
Acreage Holdings (OTHER OTC:ACRGF) is one of the largest vertically integrated, multi-state operators of cannabis licenses and assets in the U.S. With the estimated 2022 total addressable market coming in at $16.7 billion in legal cannabis sales, it’s no wonder Wall Street thinks this pot stock is heating up.
Ladenburg Thalmann & Co. analyst Glenn Mattson tells investors that when looking for compelling investments in this industry, companies that have focused on future value creation and gaining market share are solid bets. According to the analyst, ACRGF has checked all of these boxes. Acreage boasts a “solid position” in the U.S., with the company owning licenses to operate or agreements to assist in operations that span 20 states.
Adding to the good news, Canopy Growth (NYSE:CGC) announced back in April that it was set to acquire ACRGF for $3.4 billion. However, there is a huge caveat. The deal will only go through when the U.S. legalizes cannabis and will expire in seven and a half years. That being said, Mattson argues ACRGF trades at a substantial discount to the implied conversion from the proposed Canopy transaction. As a result, the four-star analyst initiated coverage with a “buy” and set an $18 price target, bringing the upside potential to 204%.
Similarly, the rest of the Street takes a bullish approach when it comes to ACRGF. Three “buy” ratings compared to one “hold” assigned in the last three months give it a “strong buy” analyst consensus. Additionally, shares could gain 179% in the next twelve months based on the $17 average price target. Get the ACRGF Stock Research Report.
Green Thumb Industries (GTBIF)
Following the wave of bullish calls over the last three months, investor focus has locked in on Green Thumb Industries (OTHER OTC:GTBIF). The company has 13 manufacturing facilities and licenses for 95 retail locations and operations in the U.S., with one analyst going so far as to call it his top pick in the industry.
Echelon Wealth Partners’ Matthew Pallotta argues that the company is a stand-out as it remains sufficiently funded for its build-out plans, unlike many of its competitors in the multi-state operator space.
“We believe GTBIF’s fully funded balance sheet puts it in an incredibly advantageous position relative to its peers, where it can ride out equity and capital market weakness without diluting the capital structure and even possibly take advantage of distressed asset prices via tuck-in acquisitions,” Pallotta commented.
While GTBIF’s most recent quarter was impressive both operationally and financially, the analyst notes that shares have dipped. Nonetheless, he thinks the dip represents an “opportunistic entry point for investors.” All of this played into Pallotta’s decision to reaffirm his “buy” recommendation and $18 price target. This puts the projected twelve-month gain at 125%.
As only “buy” ratings have been published in the last year, the message is clear: GTBIF is a “strong buy.” At an average price target of $21, shares could climb 157% higher over the next twelve months. Get the GTBIF Stock Research Report.
Charlotte’s Web (CWBHF)
Given the splash Charlotte’s Web Holdings (OTHER OTC:CWBHF) has made in the CBD segment of the cannabis market, it’s easy to see why the “strong buy” rating has only amassed bullish recommendations over the last eight months and sports 93% upside potential.
While the company has struggled on the earnings front, CWBHF has a lot to brag about. Five of the top retailers in the U.S. including CVS Health (NYSE:CVS) and Kroger (NYSE:KR) have started selling the company’s products. PI Financial analyst Jason Zandberg believes that this rapid distribution channel expansion is an important step in the right direction and that 2019 will see the company continue to scale.
Even though hemp supply has posed a cause for concern among some investors, Zandberg is confident CWBHF is prepared. The cannabis company planted 862 acres in 2019, up 187% from a year ago. If that wasn’t enough, Charlotte’s Web announced that it had signed deals with both Pacific Pet and Pet Food Experts to distribute its pet line.
In response to all of these positive developments, the four-star analyst reiterated his “buy” rating and $23 price target. At this target, Zandberg sees 89% upside from the current share price. Get the CWBHF Stock Research Report.
Cresco Labs (CRLBF)
Medical marijuana company Cresco Labs (OTHER OTC:CRLBF) is multi-state operator with interests across twelve states. That being said, investors are buzzing thanks to its Tryke Companies acquisition.
If the $282.5 million purchase is finalized, CRLBF will gain access to cultivation, processing and retail assets located in strategically significant legal states. The deal is especially noteworthy as it would expand CRLBF’s reach within 71% of the addressable cannabis market in the U.S.
Beacon analyst Russell Stanley notes that while the deal is still subject to closing conditions that include state approvals in Nevada, Arizona and Utah, it’s promising that the Department of Justice didn’t request more information following the expiration of the deal’s waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (HSR).
“We view the development as positive, while also noting that the absence of a second request for information indicates that the DOJ’s scrutiny of cannabis M&A may be moderating,” Stanley commented. As a result, he maintained his bullish thesis. It should also be noted that the analyst’s $18 price target implies a potential twelve month gain of 202%.
With five “buy” ratings compared to no “holds” or “sells” received in the last three months, the word on the Street is that CRLBF is a “strong buy.” Not to mention its $16 average price target indicates that shares could soar 169% over the next twelve months. Get the CRLBF Stock Research Report.
GrowGeneration Corporation (OTHER OTC:GRWG) is best known as an owner and operator of specialty retail hydroponic and organic garden centers. While its 25 distribution and retail locations in nine states isn’t too shabby, the company is making noise thanks to its foray into the world of cannabis.
The growing demand for cannabis products has created a huge opportunity for GRWG as there’s a need for specialized growing supplies. According to Lake Street’s Mark Smith, this fact makes the company a promising cannabis play. In addition to strong unit returns, the analyst sees potential in store as a result of its evolving retail strategy that includes a partnership with Amazon (NASDAQ:AMZN) and consolidation opportunity.
“The company has approximately doubled its revenue annually for the last two years and we expect accelerated growth in 2019. Additionally, the company has produced positive EBITDA the last two quarters and we expect the company to remain cash flow positive going forward,” he noted. This prompted Smith to start coverage with a bullish call.
Like Smith, Wall Street likes what it’s seeing. With 100% Street support, the consensus among analysts is that GRWG is a “strong buy.” Its 73% upside potential also doesn’t hurt. Get the GRWG Stock Research Report.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of over 5,000 Wall Street analysts. As of this writing, Maya Sasson did not hold a position in any of the aforementioned securities.