These five cannabis stocks are Buys, says Beacon

Beacon Securities analysts Doug Cooper and Russell Stanley provided a cannabis industry report to clients on Monday, focusing on news out of Germany on legalization as well as recent events in a number of US states.

German Health Minister Karl Lauterbach recently introduced a new proposal to at least partially legalize adult-use cannabis, with the stepwise plan to include establishing social clubs first and then commercial sales with strict limits and monitoring. Cooper and Stanley said a notable feature is a ban on import and export of adult-use cannabis and that the legislation allowing social clubs should clear the Bundestag before summer and take effect either in late 2023 or early 2024, with draft legislation on commercial sales to follow.

“While the initial open will be more limited than many hoped, the timeline is still quick relative to what many expected to occur in practice,” Cooper and Stanley wrote.

In US cannabis news, the analysts pointed to a recent Virginia Court of Appeals ruling against PharmaCann Virginia’s effort to retake its license for health service area 1 (HSA1).

Cooper and Stanley said the result is a slight setback for Verano Holdings, which in July of last year entered into an agreement to acquire PharmaCann Virginia for $5 million in cash.

“It is unclear how or when the state will issue a license for the vacant HSA, so that allows more time for incumbents (Jushi, Columbia Care and Green Thumb Industries) to entrench their positions,” Cooper and Stanley wrote.

“While the House recently rejected legislation that would have established [Virginia’s] commercial adult-use market (adult-use possession has been legal since July 2021), the medical market still offers considerable growth. Jushi management recently predicted that VA could be a $100 million/year revenue market for the company on the medical market alone,” they said.

On news out of Texas, the analysts noted last week’s passing of a bill by the House of Representatives which would allow physicians to recommend cannabis as an alternative to opioids for pain management and would replace the one per cent THC cap for oils with a 10 mg volume cap.

Cooper and Stanley said the move would be significant for the still-small medical market in the second largest US state (pop. 30 million), as pain management often represents 60-70 per cent of cannabis demand in markets that allow cannabis as a treatment.

At the same time, chances aren’t great for the bill, the analysts said, nodding to Governor Dan Patrick’s traditional opposition to cannabis.

“However, this will be a fight worth watching given the potential size of this market and increasing pressure for reform from within the state. Texas has registered just 45k patients to date, of which 10-12k are considered active. A state this size would have a patient count of 1.3 million if it reaches Arizona’s peak patient penetration rate of 4.3 per cent,” Cooper and Stanley said.

In other news, the analysts noted that Colorado’s legal sales were down three per cent month-over-month in February and Michigan’s sales were up 15 per cent month-over-month. In Georgia, medical cannabis oil may soon be available and, in Alabama, licenses for medical cannabis are scheduled to be awarded at a June 12 meeting.

In US cannabis company news, Cooper and Stanley noted that Curaleaf was recently denied renewal of its adult-use licenses in New Jersey, with reports that some members of the state’s Cannabis Regulatory Commission (CRC) staff along with the Governor’s office had supported the license renewals.

The analysts also reported that Ayr Wellness closed on the acquisition of Tahoe Hydroponics, Ascend Wellness opened an outlet-style location in Illinois, Green Thumb opened its 7th dispensary in Minnesota and Cresco Labs opening a second store on the west side of Miami.

Note: all figures below are in Canadian dollars and all projected returns are listed as of Beacon Securities’ report date.

Stock: Curaleaf (Curaleaf Stock Quote, Charts, News, Analysts, Financials CSE:CURA)

Beacon Securities Rating: Buy

Beacon Target Price: $12.00

Projected 12-month Return: 285 per cent

Stock: Ayr Wellness (Ayr Wellness Stock Quote, Charts, News, Analysts, Financials CSE:AYR.A)

Beacon Securities Rating: Buy

Beacon Target Price: $12.00

Projected 12-month Return: 1279 per cent

Stock: Ascend Wellness (Ascend Wellness Stock Quote, Charts, News, Analysts, Financials CSE:AAWH.U)

Beacon Securities Rating: Buy

Beacon Target Price: $6.25