In an analyst note from CIBC this morning titled "Cannabis: The Beginning Of A Global Seismic Shift," analysts John Zamparo and Krishna Ruthnum wrote that investors are watching the birth of a new industry. They said they expect the cannabis industry to follow the course of other newborn industries, where investors rush to pour capital into the sector and then very few companies live up to their lofty expectations while the industries develop. However, the analysts believe two particular companies -- Cronos Group (CRON) and Canopy Growth Corp (CGC) -- are likely to be winners that come to dominate the global market. They also believe another cannabis stock -- Aphria (APHA) -- has concerns that could deter investors.
CRONOS GROUP: There are two recent key achievements that have set Cronos apart from most of its competitors, according to CIBC. The first, the company signing an agreement with Ginkgo Bioworks to produce rare cannabinoids at scale, happened last September. This agreement really accelerates the company’s goal of being a cannabinoid company, rather than simply a cannabis company, the analysts contend. The second was Cronos receiving the backing of tobacco maker Altria Group (MO), with Altria buying a 45% stake in Cronos for ~$2.5B, with warrants that could give Altria majority control. The analysts believe the actions and visions of Cronos' management team stands above the rest of the field, and they initiated Cronos Group with an Outperformer rating and C$22 price target.
CANOPY GROWTH CORP: Canopy, for years, has emphasized that it aims to be a global medical cannabis company, with co-CEO Bruce Linton stating during a recent earnings call that the Canadian recreational market consumes only about 25% of his time. The company considers cannabis a “disruptive ingredient” that can have "significant consequences for industries such as alcohol, tobacco, sleep aids, pain treatment and mood therapy." Canopy has a partnership with Constellation Brands (STZ), and $4B in the bank, making it the best-capitalized in the space, the analysts tell investors. CIBC initiated Canopy Growth with an Outperformer rating and C$65 price target.
APHRIA: The debate over the value of Aphria's international assets and corporate governance concerns have obscured the value of the company's quality domestic assets, but concerns about corporate governance and capital allocation are not without some validity, the analysts wrote. They initiated Aphria (APHA) with a Neutral rating and C$10 price target.
PRICE ACTION: In late afternoon Friday trading, shares of Cronos Group were higher by 8.57% to $14.83, shares of Canopy Growth Corp were up 2% to $43.62, and shares of Aphria were lower by 1.2% to $6.40
Altria Group
+1.21 (+2.57%)
Constellation Brands
+4.1 (+2.56%)
Cronos Group
+1.48 (+10.85%)
Canopy Growth
+0.75 (+1.75%)
APHA
+