PI analyst Jason Zandberg says a few marijuana LPs are uniquely positioned to take advantage of international demand and become the dominant exporters of Canadian cannabis.
The analyst notes that there are a dozen countries that have introduced new medical cannabis laws within the past two years. He points out that there are currently 29 countries that recognize medical cannabis, although currently only a handful import product. Zandberg says The Netherlands and Canada are the only two countries that sell medical cannabis internationally and that just four Canadian LPs have actually exported product, to date. The analyst thinks the market opportunity is huge.
“The global medical cannabis market is expected to reach $55.8B (USD) or $70B-$75B (CAD) by 2025 (Grandview Research). This market size is approximately 10x the size of the total Canadian cannabis market (we estimate that both recreational and medical cannabis sales will reach $7B by 2024), ” notes Zandberg. “We believe the Canadian LPs could export $0.5B to $1.5B in medical cannabis by 2019. We believe that those Licensed Producers that can take advantage of this global opportunity are able to tap into another leg of growth in addition to the Canadian medical and recreational markets.”
Zandberg says there are three companies in particular he thinks are positioned to benefit from what could be a very strong export market.
“Three of the LPs that we cover have exported MMJ internationally – Cronos Group (V-MJN), Canopy Growth (T-WEED) and Aphria (T-APH),” says the analyst. “While initial volumes of medical cannabis have been modest we expect exports to ramp in the next few years to countries that are establishing medical cannabis programs and are opening their borders to countries with high production standards like Canada. We particularly are bullish on the German market (Cronos and Canopy Growth both have agreements in place) in which trade could become material in the next two years. Australia is also in the early stages of a medical program (Aphria and Canopy Growth have exported to Australia) which could develop into meaningful trade levels. Cronos Group, Canopy Growth and Aphria plan to expand their export footprint and are taking a leadership role for Canada.”
In a research update to clients today, Zandberg maintained his “Buy” rating on all three aforementioned stocks, but raised his one-year price target on Cronos Group from $3.00 to $4.00. The analyst raised his one-year price target on Canopy Growth from $14.00 to $15.00, and he raised his one-year price target on Aphria from $8.00 to $9.00.
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