BofA analyst says Mexico legalization 'still in play' as Cantor Fitzgerald initiates cannabis stocks
In this week's "Rising High," The Fly's recurring series focused on cannabis stock news, The Fly looks back at an analysts' view on Mexico legalization, cannabis firm initiations and earnings reports.
BOFA SAYS MEXICO LEGALIZATION ‘STILL IN PLAY’: On Monday, BofA Merrill Lynch analyst Christopher Carey noted that Mexico's Supreme Court has granted an extension until April 30, 2020 for Congress to legalize all forms of cannabis, writing in its decision that considering the complexity of the issue it grants the extension "exceptionally and for one time only." The analyst said he views this as an important development for the industry since, in addition to opening a potentially large market, it will put even more pressure on U.S. federal action as the country will potentially "place the U.S. between 2 of only 3 countries in the world to have legalized cannabis for recreational use." 9% of Mexico's population of 131M is estimated to have consumed cannabis in 2018 and the legal market could be worth $1B by 2024, according to BDS Analytics, Carey noted.
CANTOR FITZGERALD INITIATES CANNABIS STOCKS: On Monday, Cantor Fitzgerald analyst Pablo Zuanic initiated coverage of Aurora Cannabis (ACB) with a Neutral rating and price target of C$5.10 and Tilray (TLRY) with a Neutral rating and $20 price target. The analyst expects the Canadian licensed producer group to rally in the coming months on "more positive than negative catalysts," but he sees more upside in other stocks at this time. He also initiated coverage of Aphria (APHA) with an Overweight rating and C$10.40 price target. The shares trade at a discount to peers even when adjusting for a large low-margin wholesale business in Germany, Zuanic said. Further, he noted that Aphria management is confident that cannabis sales in the May fiscal year will be 10 times August quarter levels, due to ongoing market growth and share gains. The analyst also initiated coverage of Canopy Growth (CGC) with a Neutral rating and C$27 price target. Canopy has the lowest gross margin among the peer group and despite all its medical intellectual property, it "seems to have dropped the ball" in Canada medical, said Zuanic. He initiated coverage of Hexo (HEXO) as well with an Underweight rating and C$2.40 price target. The company has "big ambitions," and some of its previously stated targets may have helped the stock, but its performance so far and announced plans to date "are not aligned with the vision," Zuanic said. The analyst also initiated coverage of Organigram (OGI) with an Overweight rating and C$17 price target. Based on share trends, the company is well positioned to benefit from store openings and the onset of 2.0 deregulation in the year ahead, he said.
CANOPY GROWTH PARTNERS WITH DRAKE: Canopy Growth announced Thursday that the company has entered into agreements to partner with musician Drake to launch the More Life Growth Company, a fully licensed producer of cannabis based in Drake's hometown of Toronto, Canada. "The opportunity to partner with a world-class company like Canopy Growth on a global scale is really exciting. The idea of being able to build something special in an industry that is ever growing has been inspiring. More Life and More Blessing," said Drake. The company and Drake will share further details on the More Life team and vision in the weeks to come.
FIRMS REPORT EARNINGS:On Wednesday, Innovative Industrial Properties (IIPR) reported third quarter earnings per share of 55c, which compared to two estimates of 47c, and adjusted funds from operations of 86c. The company also reported Q3 revenues of $11.6M, which compared to a consensus of $10.7M, and Q3 rental revenues of approximately $11.2M, up 201% from last year. Additionally on Wednesday, Zynerba (ZYNE) reported a Q3 loss per share of (8c), which compared to analyst estimates of a loss of (52c). Zynerba said it believes its cash and cash equivalent position is sufficient to fund operations and capital requirements beyond the expected NDA submission and potential approval of Zygel in FXS and into the second half of 2021. CV Sciences (CVSI) also reported earnings for the third quarter on Tuesday, posting an adjusted net loss of (1c) per diluted share compared to earnings per share of 3c for the same period last year. The company also reported revenue of $12.6M, a decrease of 7% from $13.6M in 3Q18. CV Sciences expects FY19 revenue $55M-$57M, which compares to analyst views of $55.8M.
VIREO NAMES BRUCE LINTON CHAIRMAN:On Thursday, Vireo Health International (VREOF) announced that it has named Bruce Linton to the role of Executive Chairman. As Executive Chairman, Linton will be actively involved in the company's business. He will serve on the board of directors, work closely with Vireo CEO & founder Kyle Kingsley, M.D., and spearhead the company's strategic decision-making, capital markets activity and future partnerships. Linton is the founder and former CEO of Canopy Growth Corporation and co-founder of Tweed Marijuana Incorporated.
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Aleafia Health (ALEAF), Biome Grow (BIOIF), CannTrust (CTST), Canopy Rivers (CNPOF), Cronos Group (CRON), Cresco Labs (CRLBF), Delta 9 (VRNDF), DionyMed Brands (DYMEF), Elixinol Global (ELLXF), Greenlane (GNLN), General Cannabis (CANN), GrowGeneration (GRWG), Harborside (HSDEF), Harvest Health & Recreation (HRVSF), Hemp Inc. (HEMP), ICC International Cannabis (KNHBF), India Globalization Capital (IGC), Indiva (NDVAF), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), Origin House (ORHOF), Planet 13 Holdings (PLNHF), Plus Products (PLPRF), Real Brands (RLBD), Sproutly (SRUTF), Sunniva (SNNVF), Tetra Bio Pharma (TBPMF), Trulieve Cannabis (TCNNF), Wayland Group (MRRCF), and Westleaf (WSLFF).