Canaccord Raises Price TargetsMonday, April 17, 2017, 08:22:04 The federal government’s proposed legislation to legalize marijuana represents “modest de-risking event,” said Canaccord Genuity analyst Neil Maruoka.
In a research report on the Canadian cannabis industry, Mr. Maruoka said the draft bill “fit largely” within the parameters of his expectations and contained “no significant downside surprises.” Accordingly, he increased the probability of the recreational market becoming legalized in his valuation models.
“While we view this to be a watershed moment for the industry, we were not surprised that stocks sold off broadly given the lack of details provided on important issues like distribution and product offerings,” he said. “On the whole, many of the factors and considerations included in the bill were largely in line with our expectations, with an overarching emphasis on restricting access to youth, while limiting the influence of organized crime and ensuring profits do not flow to illicit markets. As the debate over this legislation progresses, we believe there could be a lack of macro or industry catalysts in the coming months, and we would therefore recommend investors look for companies with differentiated strategies and stock-specific catalysts.
“Because the broad strokes of the legislation were generally in line with our expectations, we have made only small changes to our valuations for cannabis stocks in our coverage universe. We have increased our expected probability of a legal rec market from 75 per cent to 80 per cent in all our models, resulting in target price increases for most stocks except WEED [Canopy Growth Corp.]
Mr. Maruoka raised his target price for the following stocks:
- Aphria Inc. (APH-T, “hold”) to $7 from $6.50. Consensus: $7.30.
“We have updated our [net present value] analysis to incorporate an 80-per-cent likelihood (increased from 75 per cent) of recreational legalization,” he said. “In addition, following Aphria’s Q3 results, we have included modest incremental upside from the company’s recently announced minority investment in Florida based dispensary Chestnut Hill Tree Farm.”
- OrganiGram Holdings Inc. (OGI-X, “speculative buy”) to $3.40 from $3.25. Consensus: $3.99.
- Supreme Pharmaceuticals Inc. (SL-CN, “speculative buy”) to $2.25 from $2.15. Consensus: $2.28.
- Emblem Corp. (EMC-X, “speculative buy”) to $3.80 from $3.75. Consensus: $4.15.