Cannabis stocks rally after Amazon endorses legalization

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CANNABIS WATCH

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Cannabis stock traded broadly higher Wednesday, after ecommerce behemoth Amazon.com Inc. effectively endorsed the sector by saying it will support the federal legalization of marijuana.

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The Cannabis exchange-traded fund rallied 2.6% in afternoon trading, while the ETFMG Alternative Harvest ETF climbed 2.3%.

Among the more active stocks, the U.S.-listed shares of Tilray Inc. ran up 7.5%, Aurora Cannabis Inc. climbed 5.1% and Cronos Group Inc. advanced 4.2%.

Canopy Growth Corp.’s stock hiked up 4.3%. The rally comes a day after it dropped 6.9% in the wake of fiscal fourth-quarter results, in which the Canada-based company reported a wider-than-expected loss and revenue that rose less than forecast.

The sector got a boost after Amazon said late Tuesday that it will no longer screen prospective employees for marijuana for any positions not regulated by the Department of Transportation. Instead, the company said it will treat marijuana the same as alcohol use.

“And because we know that the issue is bigger than Amazon, our public policy team will be actively supporting The Marijuana Opportunity and Reinvestment and Expungement Act of 2021 (MORE Act) — federal legislation that would legalize marijuana at the federal level, expunge criminal records and invest in impacted communities,” wrote Dave Clark, chief executive of Worldwide Consumer at Amazon, in a blog post.

“We hope that other employers will join us, and that policymakers will act swiftly to pass this law,” Clark wrote.

Also read: Cannabis stocks rally after Chuck Schumer leads drive for reforms that may end federal prohibition.

Elsewhere, shares of GrowGeneration Corp. gained 1.4%, Curaleaf Holdings Inc. tacked on 0.8%, Harvest Health & Recreation Inc. rose 0.7% and Akerna Corp. edged up 0.5%, while Green Thumb Industries Inc. gave up 0.4%.

The Cannabis ETF has dropped 15.6% over the past three months, but was still up 42.4% year to date, while the S&P 500 index has advanced 11.9% this year.

Analysts react to Canopy earnings

MKM Partners analyst Bill Kirk said what was “particularly disappointing” about Canopy’s results was that adjusted gross margin fell to 14% from 26% in the sequential third quarter, and from 42% a year ago.

That said, he reiterated the buy rating he’s had on the stock since he upgraded it last week, but trimmed his price target to C$51 from C$55.

“The fight over Canadian market share is likely to remain elevated and pressure pricing, but economic reopening and the accompanying increased store count, should help sector-wide performance,” Kirk wrote in a note to clients. “We believe Canopy has rationalized its organization (supply chain, logistics, infrastructure) to better capture formerly missed opportunities.”

Meanwhile, Alliance Global Partners’ Aaron Grey affirmed the neutral rating he’s had on Canopy since November 2019, but cut his price target to C$32 from C$40, citing the disappointing gross margin results and the slowdown in sales due to COVID-19 and seasonality.

“While the company maintained its profitability targets…we see the company’s ability to improve its cost structure as key to achieving this target,” Grey wrote.

Analyst Andrew Carter at Stifel Nicolaus kept his rating at sell and his price target at C$21, saying that with “robust valuation” prevailing for the stock, “we believe the valuation does not fully consider the magnitude of ongoing expenses and difficulty in profitably accelerating sales growth to meet medium-term growth targets driving our continued negative approach to the shares.”

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