Beacon Securities released a cannabis industry update on Monday after a wild stretch of trading days in recent weeks saw stocks shoot up by over 20 per cent, only to lose much of that ground over ensuing sessions. But analysts Doug Cooper and Russell Stanley are staying bullish on the sector, saying there are a number of names still worth investor attention.
Cannabis stocks went for a ride after news broke on October 6 that US President Joe Biden would be pardoning marijuana possession offenders and looking into the process for rescheduling cannabis at the federal level. That drove up Canadian Securities Exchange-traded stocks like Trulieve Cannabis, Curaleaf Holdings and Green Thumb Industries, which immediately rose 38 per cent, 33 per cent and 44 per cent, respectively, while the cannabis sector ETF Advisorshares Pure US Cannabis was up 34 per cent.
The surge came after a good year and a half of sustained losses by the pot stocks, as Canadian-operating companies continue to struggle in the emerging market and their American cousins scrambled to open up stores and obtain licenses in newly-created legal markets at the state level. Federal legalization in the US remains a main hurdle south of the border, and so, Biden’s announcement brought with it a breath of fresh air and the hope of a breakthrough. But the market rally petered out almost as quickly, with stocks again losing ground last week, erasing much of those earlier gains.
For Beacon analysts Cooper and Stanley, the reversal brought new insights into the space.
“18 of 21 stocks lost ground last week, with the active ETF (MSOS) down 20 per cent following the 32 per cent gain the week before,” Cooper and Stanley wrote in their report.
“The top performers last week included Statehouse Holdings (up 16 per cent), AFC Gamma Inc (up two per cent) and Lowell Farms (flat). Based on daily charts, 15 of 21 stocks now show negative momentum (RSI > 50), a reversal from last week, when 16 of 21 showed positive momentum. 19 of 21 stocks showed reduced momentum (RSI down w/w), with the exceptions being AFCG and PLTH,” they wrote.
The analysts said the MSOS ETF appears ready on a technical perspective to test its prior all-time lows set in late September, which are six per cent below current levels.
“Based on weekly charts, our favourites include AFG Gamma (uptrend intact), Jushi Holdings (long-term uptrend may offer support) and Schwazze (testing its prior accelerated downtrend as possible support),” they said.
Cooper and Stanley reported on recent events with a number of US names, including Schwazze, which has cannabis operations in Colorado and New Mexico. The analysts commented on the company’s recent executive moves, including the announcement of the promotion of its COO Nirup Krishnamurthy to President, saying, “We spent time with him during our site visit in May, and we view this announcement positively. Mr. Krishnamurthy has been with SHWZ since 2000. He previously held C-Suite roles at United Airlines and former national grocery retailer A&P. The company also announced that CFO Nancy Huber is retiring for personal reasons. She will stay on indefinitely while a search for a replacement is conducted, so the transition should be relatively smooth.”
On recent executive moves from Miami-based Ayr Wellness, the analysts said David Goubert, recently appointed as President, brings with him an impressive pedigree, while Jennifer Drake has taken up the position of sole COO for Ayr, another positive for the company, they said, as Drake has been “the investor-facing point person for AYR since its public transaction,” Cooper and Stanley wrote.
Meanwhile, the analysts also commented on news from various states in the Union, including New York where Cannabis Control Board Chair Tremaine Wright intimated that initial licensing for the state’s adult-use market could start in early 2023. “This timeline pushes out the state date versus Governor Hochul’s recent indications that the state is on track to have 20 adult-use dispensaries open before year end,” the analysts commented.
Cooper and Stanley noted that legal cannabis sales in Colorado were up one per cent for the second quarter, sales in Michigan were up 11 per cent in the third quarter and New Mexico sales were up four per cent in the third quarter.
With the update, Cooper and Stanley reiterated “Buy” ratings on the following companies.
Stock: Verano Holdings (Verano Stock Quote, Charts, News, Analysts, Financials CSE:VRNO)
Price Target: C$31.00
Projected 12-month return at the time of publication: 396 per cent
Stock: Schwazze (Schwazze Stock Quote, Charts, News, Analysts, Financials NEO:SHWZ)
Price Target: C$3.00
Projected 12-month return: 62 per cent
Stock: Ayr Wellness (Ayr Wellness Stock Quote, Charts, News, Analysts, Financials CSE:AYR.A)
Price Target: C$30.00
Projected 12-month return: 524 per cent
Stock: Trulieve Cannabis (Trulieve Cannabis Stock Quote, Charts, News, Analysts, Financials CSE:TRUL)
Price Target: C$62.00
Projected 12-month return: 359 per cent
Stock: Cresco Labs (Cresco Labs Stock Quote, Charts, News, Analysts, Financials CSE:CL)
Price Target: C$11.00
Projected 12-month return: 158 per cent
Stock: Curaleaf Holdings (Curaleaf Stock Quote, Charts, News, Analysts, Financials CSE:CURA)
Price Target: C$14.00
Projected 12-month return: 94 per cent
Stock: High Tide (High Tide Stock Quote, Charts, News, Analysts, Financials TSXV:HITI)
Price Target: C$5.50
Projected 12-month return: 182 per cent
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