Analyst review... While the outlook for 2022 “remains encouraging,” Canaccord Genuity analysts Matt Bottomley and Derek Dley expect “a rather flat finish” to 2021 for U.S. cannabis companies.
“Per our review of state-level sales data in the U.S., as well as retail point-of-sales metrics (where available), it appears that end-user sales remained relatively flat in Q4/21 after starting to decelerate in the prior quarter,” they said. “We believe record-high inflation rates have had an overall net negative impact on average basket sizes and the frequency of store visits as the cost to consumers for gasoline, food and other staples have likely reduced discretionary spending on cannabis.”
“It also appears that several markets have begun to experience increased pricing headwinds in wholesale channels as additional capacity continues to come online. Although we believe much of this capacity will still have a longer-term use as markets continue to ramp (and new recreational markets are legalized), we are nonetheless anticipating near-term wholesale pricing headwinds to persist for the time being.”
In a research note released Friday, the analysts reduced their target price for Trulieve ahead of the start of fourth-quarter earnings season. They now rate TRUL as a "buy" but have reduced the TP to $70 from $97. The average TP is $79.33.
“Since the highs of this past February, U.S. Cannabis equities have remained under pressure with our Canaccord Genuity US Cannabis Index down more than 60 per cent during this time frame,” they said. “We believe a large majority of this pressure is coming from structural challenges in the equity markets given that cannabis remains an illicit Schedule 1 drug at the federal level. However, we continue to assert that fundamentals remain strong (even if slowed) and although pressure may persist over the near term, we believe the divergence between fundamentals and price action has resulted in an attractive entry point for those able to participate in the space.”