After the debut of the first Canadian marijuana IPOs, many investors have been waiting for a clear sign of when the SEC will approve the first cannabis ETF. On September 28th, Cowen and Company released a note that was seen as favorable to cannabis stocks and their investors. This note has been held up as a serious indication that the SEC will approve the first cannabis ETF, and that approval is coming soon.
A top investment bank has issued a positive report on the cannabis industry, saying, “We believe that the global cannabis opportunity has only just begun and estimate that global sales will reach $200 billion by 2030.” The bank is also recommending that investors double down on their shares in Canadian-based Tilray, the largest marijuana stock in the world, saying, the company will be one of the biggest and most profitable players to emerge from the industry.
The U.S. cannabis industry is booming; the reason why, according to a new report by U.K.-based Prohibition Partners, is that an investment bank is signaling its positivity toward pot stocks in the face of the prolonged federal ban on marijuana. In addition, the recently legalized recreational use of marijuana by the state of California is also a positive development for the industry, Prohibition Partners said. “We believe that Tilray is well positioned to benefit from these new markets, and expect further M&A to take place in the cannabis industry in the coming quarters,” said Prohibition Partners.
TLRY stock tops Wall Street’s latest marijuana stocks recommendation
One of the major themes I have followed in the marijuana market over the years is the relationship marijuana companies have had with Wall Street and institutional investors. We have seen some significant developments in this regard recently, including a recent bright spot for Tilray Inc (NASDAQ:TLRY). Before I recount the positive news for Tilray stock, I’ll go over the events surrounding marijuana and Wall Street stocks. First, the marijuana industry was banned on Wall Street. Because U.S. federal law prohibits marijuana, banks cannot legally hold money directly related to marijuana trafficking. For this reason, many marijuana companies in the United States are forced to keep their profits in cash. This has led to significant problems, not only in terms of accounting but also in terms of security. There have been cases of armed robbery. The legal situation also means that marijuana companies have difficulty getting loans from banks, which limits their ability to grow. On the political front, however, progress has been made. The SAFE Banking Act of 2019 is pending before Congress and, if passed, will allow banks to do business with cannabis companies. But as with everything in American politics, political gridlock threatens to kill the SAFE Banking Act, even if the rationale behind it enjoys bipartisan support. All of this has created an atmosphere where Wall Street does not want to get into the marijuana business. This is evident in the way the major investment banks treat the sector. But we are starting to see a change in attitude. To be fair, Wall Street has long changed its mind about cannabis stocks. But in recent weeks, we’ve seen some significant developments involving institutional investors and the marijuana industry. One such event took place in late April. Bank of America Corp (NYSE:BAC) has renewed its coverage of three marijuana-related stocks. The bank gave Canopy Growth Corp (NYSE:CGC) the most favorable rating with a Buy rating. Bank of America expects Canopy Growth’s shares to grow by about 28.5% over the next 12 months. (Source: UPDATE: BofA Securities reinstates Canopy Growth (WEED:CN) (CGC) rating to Buy, StreetInsider.com, April 28, 2021). It is a very good sign that banks are starting to look again at the potential of the marijuana industry. As a result, Jefferies Financial Group Inc (NYSE:JEF), a New York-based investment bank, has issued several bullish reports on marijuana-related stocks, specifically TLRY stocks. Jefferies analyst Owen Bennett raised his position on shares of Tilray following the completion of Tilray’s merger with Aphria Inc (NYSE:APHA) on the 3rd. In May, the rating was upgraded twice to Buy. (Source: Tilray stock jumped after Jefferies upgraded to a buy rating, BNN Bloomberg, May 7, 2021). Bennett has set a $23.00 price target for TLRY stock, making it a top pick in the cannabis sector. Tilray shares are currently trading around $16.00. In other words: An analyst at Jefferies predicts growth of more than 40%. Bennett reviewed Tilray Inc’s earnings and profit profile relative to sector peers before recommending TLRY shares. He also wrote about Tilray’s potential to capture a larger share of the U.S. market, as well as the company’s undeniable opportunity for the American herbal industry when it is eventually legalized at the federal level. Through the merger with Aphria Inc. and revenue growth, Bennett expects Tilray Inc. to triple its revenue this fiscal year to $601.5 million and $2.7 billion by 2029. In Canada, [Tilray] has a leading brand portfolio that is now supported by an even more efficient cost structure, Bennett said. He continued, In Europe, the market is growing and Tilray’s size and Aphria’s unique position in Germany are ideal for success. And in the US, the combined company’s broader consumer product portfolio and strong balance sheet make [tetrahydrocannabinol] and [cannabidiol] an excellent choice. (Source: Ibid). This is a fairly reliable option. I didn’t like Tilray’s shares when they first came on the market because they were way overvalued. But after several years of steady declines, TLRY stock now seems better valued and ready to resume growth. Graph courtesy of StockCharts.com Moreover, the merger of Tilray Inc and Aphria Inc has put the company in the spotlight of investors, as the combined company is likely to challenge Canopy Growth Corp for the unofficial title of industry leader. I’m still leaning more towards other marijuana stocks (including Canopy Growth stocks), but all things considered, it looks like Tilray stock is well positioned for a significant rise. From a macro perspective, Wall Street’s bullish sentiment is good news for investors in cannabis stocks. Moreover, the potentially huge flow of capital that will flow into the market through institutional investors if marijuana is decriminalized in the U.S. or legalized nationwide – or even if the SAFE Act is passed – could lead to huge gains in marijuana stocks.
Whether you’re a fan of Tilray stock or more interested in what the growing bank coverage means for the company’s shares as a whole, the above news can’t be taken negatively as bullish news. The facts on the ground are that marijuana stocks are recovering from an overcorrection as institutional investors come into play, which is a great opportunity for the market.
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