Top Cowen analyst Vivien Azer started covering the main cannabis players in 2016, about two years before Canada even legalized adult recreational use.
Needless to say, for cannabis investors trying to make sense of a rapidly maturing space, her insights are those that catch significant attention.
On Friday, Azer initiated coverage on five U.S. cannabis companies that she deemed noteworthy as she reiterated her call for total U.S. cannabis sales to hit $80 billion by 2030.
Relative to their Canadian cannabis peers, Azer notes that the operating paradigm for U.S. multi-state cannabis companies is more nuanced given tax differences and restrictions in scientific research. However, “brand development in the U.S. is much easier, given regulatory nuances, which favors the U.S. operators who emphasize a traditional CPG model that relies more on high-margin finished goods, as opposed to specialty retail,” she wrote in a note published Friday.
With that in mind, coupled with investors voicing a rising importance on profitability and strong cash positions, Azer recommended three companies with Outperform ratings:
Green Thumb Industries (GTBIF) with a $18.50 per share price target
Curaleaf (CURLF) with a $10.50 per share price target
Cresco Labs (CRLBF) with a $14 per share price target
Both Green Thumb Industries and Curaleaf boast calendar 2019 revenues that topped the $32 million average posted by the 10 largest multi-state operators. While Cresco Labs can’t say the same, the company impressed enough with its outsized early profitability and a “focused approach on key states (favoring depth over breadth), and reliance on higher-margin brands, (as opposed to retail,)” she writes.
Out of all three Outperform rated stocks, Green Thumb Industries won Cowen’s highest conviction for its “consistent focus on shareholder returns” thanks in part to the best positive EBITDA in absolute terms and strongest margins in the most recent quarter amongst Cowen’s coverage.
None of the names, however, were able to escape the pressure that has hit the cannabis sector overall these past few months, with all three losing ground — including a 13% drop for Cresco Labs over the past three months.