Two cannabis stocks analysts love right now

Externalities are driving share prices in the cannabis sector, but there is great value in some of the individual stocks, analysts say.

This week’s news was an example of the seemingly never-ending roller-coaster of developments that drive the sector -and drive investors in it crazy- as the Drug Enforcement Administration pushed back the the date of a hearing to possibly reclassify marijuana to a Schedule 1 drug to December 2, after the 2024 presidential election. Pot stocks fell across the board.

But fear not, two Canadian analysts say there is value here. We highlight two stocks they love right now.

Following the release of its Q2 numbers on August 8, Beacon analyst Doug Cooper said he thinks there is a lot of money to be made on Village Farms International (Village Farms International Stock Quote, Chart, News, Analysts, Financials NASDAQ:VFF).

On August 8, VFF reported its Q2, 2024 results. The company posted EBITDA of negative $3.6-million on Consolidated Revenue of $92.2-million.

Calling the stock “incredibly undervalued”, Cooper says it is clear that VFF’s cannabis segment is expanding.

“Without a doubt, the highlight of the earnings report was the performance of its Canadian cannabis segment. The company grew net sales by 45% with retail branded sales +35%. It was the only top-5 producer to gain market share sequentially. Furthermore, it maintained its #2 position nationally but, we believe, could overtake the #1 spot by YE. We have said for years that VFF would ultimately dominate the Canadian cannabis retail landscape. Both its scale and growing experience are enabling it to be the industry’s lowcost producer of high-quality product. Like the three most important factors in real estate (location, location, location), the 4 most important factors in cannabis are low-cost, high quality, low-cost and high quality…as one can see, we are starting to see a real separation as companies like ACB have essentially left the recreational market. We note that both VFF and TLRY saw a dramatic increase in their wholesale revenue (C$11.3m and C$17m respectively) as the number of companies who actually (successfully) grow cannabis in Canada shrinks. Excluding wholesale, VFF’s retail branded sales have substantially narrowed the gap with TLRY at C$41.8m v/s C$53m (versus C$31.1m and C$56m last year). In addition, recall that VFF’s growth is entirely organic while TLRY benefitted y/y from its acquisition of HEXO, indicating to us that TLRY continues to lose market share.”

In a research update to clients August 19, Cooper maintained his “Buy” rating and price target of (US) $3.00 on VFF, implying a return of 175% at the time of publication.

Following its most recent acquisition, Beacon Securities analyst Russell Stanley has raised his price target on Verano Holdings (Verano Holdings Stock Quote, Chart, News, Analysts, Financials NEO:VRNO).

“VRNO has acquired the licensing, a cultivation/manufacturing operation, and the state maximum of 6 dispensaries in Health Service Area (HSA) V for $105M ($20M in cash, $40M in stock, and a $30M amortizing note paying 7%, maturing in two years),” he wrote. “During its Q2 earnings call earlier this month, VRNO noted plans to expand, upgrade and automate the cultivation facility, as well as relocate the dispensary currently co-located with the grow. VA is unique for dividing the state into five regions, giving each licensee exclusivity in that region (HSA I is currently vacant pending a license award, which should be imminent). HSA V is home to 2M people. CBST retains its licensing/operations for HSA IV. Virginia’s medical market is still relatively young and could 3-4x from here. Adult-use possession has been legal for 3+ years, but earlier this year, Governor Youngkin (Republican) vetoed legislation that would have established a commercial adult-use market. Governors are limited to one term in VA, and the next election will be in November 2025, so we expect a new governor and renewed adult-use potential in 2026.”

In a research update to clients August 22, Stanley maintained his “Buy” rating and raised his price target on VRNO from $12.75 to $13.50, implying a return of 152% at the time of publication.