Canaccord Upgrade Separately, Canaccord Genuity analyst Derek Dley raised his target prices for a group of U.S. cannabis companies with Canadian stock listings following the recent Democratic wins in the Georgia Senate run-offs, which he thinks will result in “an acceleration of pro-cannabis legislation over the medium term.”
“With the Democrats taking control of both the House of Representatives and now the Senate in the United States, we note investor sentiment surrounding the cannabis industry in the country has continued to improve given the party’s positive view on cannabis,” he said. “We therefore expect an increasing likelihood of key pro-cannabis-related legislation over the medium term, providing strong secular tailwinds for the industry.”
Mr. Dley made the these changes:
* Cresco Labs Inc. “speculative buy”) to $20.50 from $16. The average on the Street is $16.86.
“Sentiment towards cannabis in Cresco’s core states of operation, namely Illinois and Pennsylvania (where the company also completed two meaningful production/ cultivation facility expansions), also continues to improve,” he said. “Within Illinois, Cresco’s home state where the company operates a market leading ten dispensaries, the state’s medical and adult-use programs have enjoyed significant growth over the course of the year. Combined medical and adult-use sales in the supply-constrained market are now expected to surpass US$1 billion for 2020, following the first year of adult-use legalization.”
“In our view, Cresco is well positioned to capitalize on the increasing acceptance of cannabis within its core states, boasts a well-regarded management team, and offers investors a differentiated cannabis opportunity through its focus on both wholesale and retail in highly strategic geographic markets.”
* Curaleaf Holdings Inc. (CURA-CN, “speculative buy”) to $23.50 from $18.50. Average: $19.44.
“Earlier this week, Curaleaf announced the closing of both its previously announced revolving credit facility and subordinated voting share equity raise,” he said. “The revolver is a US$50-million three-year secured facility (with a maturity of January 10, 2024) with an interest rate of 10.25 per cent. The equity raise saw the company issue 19.0 million subordinated voting shares at $16.70 (Canadian) per share, for total gross proceeds of $317-million (or US$250-million). In addition to cash on hand as of its Q3/20 reporting and proceeds from the sale of some of its Maryland assets, we note that Curaleaf now has more than US$400-million of cash on hand. We believe this puts the company in a favourable capital position vs. many of its U.S. peers with the flexibility to better navigate what is an extremely fast-moving industry at the state level that could see as many as five of CURA’s markets legalize/ implement adult-use sales in the next 12 months (AZ, NJ, NY, PA, CT).”
* Trulieve Cannabis Corp. (TRUL-CN, “speculative buy”) to $75 from $60. Average: $55.83.
“We believe Trulieve remains one of the best positioned MSO’s to capitalize on more favourable regulatory headwinds over the course of our forecast period, as well as increasing investor demand for cannabis exposure,” said Mr. Dley.
“With Trulieve currently trading at 10.8 times our 2022 EBITDA estimate and given Trulieve’s dominant and growing position in the attractive Florida market, and exposure to the high growth Pennsylvania and Massachusetts markets, we believe the shares are undervalued at current levels.”