Cannabis stocks were mostly higher Monday after Canopy Growth Corp (NYSE: CGC) received positive coverage from an analyst.
The Analysts
GMP Securities' Martin Landry upgraded Canopy Growth from Hold to Buy with a price target lifted from $65 to $72.
The Thesis
Canopy Growth last week secured the rights to buy Acreage Holdings (OTC: ACRGF) when cannabis is legalized in the U.S. The agreement constitutes the bulk of Landry's upgrade and should improve Acreage's ability to consolidate the American market, MarketWatch quoted the analyst as saying. As such, assuming Canopy eventually owns Acreage, it will likely be "much larger than currently."
Acreage's footprint spans 20 states, 87 dispensaries and 22 cultivation and processing sites. The price tag on the deal is $3.4 billion, or 21.5 times consensus EBITDA on 2020 estimates, which Landry said is a low multiple despite the "strategic nature of the acquisition" and expectations for strong growth. If cannabis is fully legalized in the U.S., valuation multiples of multi-state operators like Acreage are "likely to be higher."
Canopy's move gives it geographical diversity away from Canada, according to MarketWatch. In fact, the U.S. market is estimated to be 10 times larger than Canada.
Price Action
Canopy Growth's stock traded higher by 6 percent at $47.22 per share Monday afternoon.
Related Links:
Canopy Growth Soars On Unexpected Guidance Update, European Acquisition
Bank Of America Initiates Coverage On Cannabis Stocks, Names Surprising Top Pick
Latest Ratings for CGC
| Date | Firm | Action | From | To |
|---|---|---|---|---|
| Apr 2019 | GMP Securities | Upgrades | Hold | Buy |
| Apr 2019 | Bank of America | Initiates Coverage On | Buy | |
| Feb 2019 | Jefferies | Initiates Coverage On | Hold |
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