For people who wonder if the cannabis sector will ever see the type of growth it generated when the industry exploded onto the investing radar in 2018, after Canada became the first G7 country to legalize the weed, they got a clear indication last week.
The source was a prominent Jefferies analyst who described the future of the cannabis industry as a “generational wealth opportunity” for investors. The comment was part of a note announcing the initiation of coverage of seven U.S.-based marijuana companies.
Jefferies analyst Owen Bennett set a ‘buy’ rating on all seven companies that will now be covered: AYR Strategies (OTC:), Columbia Care (OTC:), Curaleaf Holdings (OTC:), Cresco Labs (OTC:), Green Thumb Industries (OTC:), Terrascend Corp (OTC:) and Trulieve Cannabis (OTC:) Corp.
Bennett said he expects the share price of each of these companies to double over the course of the next 12 months, reportedly saying the increase will be spurred by growth in the industry as the U.S. inches closer and closer to federal legalization.
According to a report by BNN Bloomberg, Jefferies expects American cannabis sales to expand dramatically over the coming decade—from US$17 billion, where it stood in 2020, to about US$64 billion by 2030. Most of that growth will be the result of legalization moves at both the state and federal levels, and regulatory changes that will facilitate easier access to institutional investment. He pegged federal legal acceptance by 2026.
Bennett also pointed out that the valuations of U.S. cannabis companies are well below Canadian operators, which he described as being valued at a premium despite not having direct exposure to the U.S. market and operating in a relatively smaller market.
If Bennett’s expectations materialize, stocks like Trulieve, which closed Monday at US$37, could hit a price target north of $62, setting an all-time high for the Florida-based grower that has been on an impressive trajectory to date.
Another stock on Bennett’s list, Green Thumb Industries, closed Monday at US$33.03. Jeffries target price would put that up to around US$70. Green Thumb has gained almost 227% in the last 12 months.
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Mexico Next Big Market In North America
Skipping from talk of U.S. federal legalization to the prospect of Mexico legalizing the weed, the topic has sparked that country’s former president to say cannabis should be included in the Canada-Mexico-U.S. free-trade agreement.
Mexico has legalized medical use of cannabis and, in September, will take the next step and legalize its recreational use.
Vincente Fox made the statement after Mexico’s Supreme Court ruled that it will allow the country roll back any recreational-use prohibitions, clearing the way for legalization to move forward.
Fox is also a member of the board of directors of a privately held, Canadian-based marijuana-grower, Khiron Live Sciences Corp. He said the company will be selling cannabis products to Mexican consumers in the coming weeks.
Mexico, which a population of about 130 million, would be the largest legal cannabis market when it legalizes recreational use of the substance, but analysts are predicting it will be smaller than the Canadian market. In 2020, the U.S. cannabis market accounted for US$17.2 billion, while the Canadian market is still only expected to reach about $9 billion when it hits its peak.