No one should be surprised that the Canadian cannabis market hasn’t been doing that well. The past several months has seen the sector decline by double-digit margins, with many highly regarded stocks losing 60% or 70% of their market value.
For growth investors, it’s a terrible time, as many were hoping that the strong performance seen in Q1 2019 would continue throughout the rest of the year. However, this decline could be good news for value investors, as some companies might be good buying opportunities at these prices. As it turns out, one Wall Street analyst has gone on to say that he thinks we’re reaching the bottom for the cannabis market.
Pablo Zuanic, an analyst from Cantor Fitzgerald, initiated coverage of six pot stocks this week and issued a report to clients that argued that many companies in the sector are undervalued. He goes on to say that he expects the market to hit a bottom soon if it hasn’t already, and now is an excellent buying opportunity for a few pot stocks.
“We are calling the bottom on Canadian cannabis stocks and think positive catalysts far outweigh negative ones. We think retailers and consumers will become more discerning about suppliers and brands, and we believe smaller companies may not be well equipped to meet the demand for derivates,” said Zuanic “The CBD industry remains poorly regulated, but preliminary studies have found CBD can help with anxiety, cognition, movement disorders, and pain. If true, this could certainly add more consumers to the total cannabis market.”
The companies Zuanic initiated coverage on include Aphria, Organigram Holdings, Aurora Cannabis, Canopy Growth, Tilray, and Hexo. Aphria and Organigram were the two companies he was most bullish on, while Aurora, Canopy, and Tilray are stocks Zuanic is more neutral on. Hexo is the one company that he is bearish on, having once been one of the most promising pot stocks in the Canadian market before losing its charm after announcing significant financial losses.
Overall, he expects the Canadian cannabis market to hit $2.44 billion by 2020 and $4.5 billion by the end of 2022, while U.S. CBD sales are figured by Zuanic to reach $15 billion by 2023 in comparison to the $2 billion seen in 2018. Overall, these figures are pretty much in alignment with the rest of Wall Street as an increasing number of retail dispensaries in Canada promise to eventually sort out the ongoing supply problems seen in the provinces.
While this positive position is a little contrarian to where the market has gone over the past few months, a surprising number of cannabis analysts are still very optimistic about the industry. The question isn’t so much whether the cannabis industry will continue to grow, rather, it’s just how long this recent downturn will last. For growth investors, things have definitely turned against them, but value investors could find some good deals in the current market if they are willing to play the long game and wait things out.