Jefferies analyst Owen Bennett initiated coverage of seven U.S. cannabis stocks, including five he sees having the potential to about double from current levels, driven by industry growth, further consolidation, and institutional led re-rating. The analyst believes preferred names Cresco (CRLBF), Curaleaf (CURLF) and Green Thumb (GTBIF) are better aligned for success in a likely longer-term industry structure, citing their exposure to key states, interstate positioning and CBD/international optionality.
GENERATIONAL WEALTH OPPORTUNITY: Jefferies analyst Owen Bennett started coverage of seven U.S. cannabis stocks with Buy ratings, setting price targets of C$17 for TerrAscend (TRSSF), C$80 for Ayr Wellness (AYRWF), C$19 for Columbia Care (CCHWF), C$36 for Cresco Labs, C$62 for Trulieve Cannabis (TCNNF), C$70 for Green Thumb Industries, and C$32 for Curaleaf.
The analyst argued that this is a "generational wealth opportunity" with potential average expected 12-month gains across the coverage to be over 100%. This will be driven by "exceptional" industry growth, further consolidation in a fragmented industry, and institutional led sector re-rating, Bennett contended. He estimates the U.S. cannabis industry retail sales in 2020 were $17.2B, a 40% increase versus 2019. By 2025, Bennett sees industry sales reaching $36B and $64B by 2030, with an assumption of federal legalization kicking in as of 2026.
The analyst also sees further consolidation ahead, supported by M&A. With an estimated 27,000 plant touching businesses currently in operation, the space is primed for further consolidation, he added, noting that M&A has been a key tool, and he expects this to persist — with added urgency to scale ahead of near-term reform leading to new competitive entrants and the state structure making organic growth more difficult.
Additionally, Bennett believes that institutional driven sector re-rating will be material. Despite compelling fundamentals, institutional participation minimal at just 4%, as most institutions cannot own currently due to federal illegality and a lack of capital market protections, the analyst noted. He expects, however, protection to be provided very soon - next 12 months - via either Schumer Bill/SAFE Banking. Overall, the analyst believes preferred names Cresco, Curaleaf, and Green Thumb are better aligned for success in a likely longer-term industry structure, namely exposure to key states, branding/wholesale, robust balance sheet, interstate positioning and CBD/international optionality.
PRICE ACTION: In Wednesday morning trading, shares of TerrAscend and Cresco Lab are fractionally higher, while Ayr Wellness shares have gained about 2%. Also higher, Columbia Care has advanced over 5% to $4.90, while Trulieve and Green Thumb Industries have risen about 1% each.
Cresco Labs
-0.32 (-2.83%)
Curaleaf
-0.19 (-1.36%)
Green Thumb Industries
-0.08631 (-0.26%)
TerrAscend
-0.3081 (-2.70%)
Ayr Wellness
+0.1 (+0.35%)
Columbia Care
-0.03 (-0.64%)
Trulieve Cannabis
-1.5 (-3.87%)