- The COVID-19 Pandemic Has Changed the Game for Nearly Every Cannabis Company
- In Response to the Coronavirus, Many Analysts Have Updated Their Research on Individual Pot Stocks to Factor in the Virus’ Impact
- Here’s a Recap of the Recent Analyst Activity Including Updated Ratings and Price Targets
The rapid rise of the deadly Coronavirus has drastically altered the North American economy for the foreseeable future. The usual way of life we all once knew has also changed radically. In the United States and Canada, all non-essential businesses are temporarily closed, and individuals not directly involved with the COVID-19 fight have been asked to stay home to help mitigate the virus’ spread.
Except for a few, nearly every industry has been hit hard by the pandemic, with many completely shut down until further notice. The cannabis industry, however, received incredible news recently when it was declared an essential service by many key U.S. states and Canadian provinces. With a vast percentage of the population now in self-quarantine, overall cannabis retail and delivery sales have increased. During this trying time, an increasing number of individuals have turned to weed as a means to cope as they “Quarantine and Chill.”
As a result, the marijuana sector received a nice boost during a time that most other industries are struggling. With the North American economy possibly headed towards a Coronavirus induced recession, some industry experts are starting to add cannabis to the list of recession-proof sectors. Some economists are speculating that marijuana could follow a similar path as alcohol did during the Great Recession of 2008, which saw booze sales hold strong.
“A lot of these sin businesses – like alcohol, tobacco and cannabis – they hold up better in periods of recession than other traditional businesses,” stated Oregon-based economist, Beau Whitney. Beau has worked for several marijuana companies including data and analytics powerhouse, New Frontier Data.
“Consumers budget for cannabis. And they will budget and spend consistently, even when they pare back payments on other things, like that latte or going to the movies,” added Whitney.
Echelon Wealth Partners issued a new report today, which looks to gauge COVID-19’s overall effect on the cannabis industry. Echelon analyst Andrew Semple believes cannabis investors should be opportunistic but, at the same time, careful.
Semple echoed this sentiment in his statement from today’s report:
“Overall, we view cannabis as a relatively attractive industry during the COVID-19 pandemic, particularly in the U.S.
cannabis markets. However, we advise investors to proceed with a high degree of caution, as many companies will need to access capital in these difficult market conditions, which may impair future upside potential. We advise investors to stick with our pre-screened cannabis coverage companies (in particular, those looking for fully funded business plans should consider our “Buy” rated names), and review our recent transitioning coverage reports for a recent business update.”
For more information on Echelon’s new COVID-19 and the cannabis industry report, check out Nick Waddell’s article on Cantech Letter.
While cannabis being deemed an essential service certainly gives the industry a much-needed boost, some companies stand to benefit more than others for a variety of reasons. Now that there’s a bit more clarity on the marijuana industry’s future, multiple analysts have issued new research updates on individual cannabis stocks factoring in the potential impact of COVID-19.
Over the past week or so, analysts have updated their research, including ratings and price targets on the following 8 pot stocks. As you will see, the current economic climate has helped some but hurt others.
Green Thumb (CSE: GTII) (OTCQX: GTBIF) (FRA: R9U2)
- Analyst: Andrew Semple | Echelon Wealth Partners
- Rating: Reiterated | ‘BUY’
- Price Target: Maintained | $20 per share
- Today’s Close: $8.25
- Implied ROI: +142.42%
Semple’s Comments
“Within the U.S. cannabis industry, we would place our bets on GTI. The Company is fully funded for its expansion plans with access to $100 million-plus of capital and no pending M&A.”
“We like that the Company’s operations are diversified, having achieved meaningful scale in several large markets (NV, IL, PA, CT, MA, MD), with operations in a total of 12 states. We believe GTI is generating operating cashflow today, reducing the risk that it will require the capital markets in this volatile time. We also believe the pandemic may shake out some of the weaker hands in the cannabis industry, leaving GTI even better positioned once it emerges from the crisis.”
GTII Earnings Forecast
- Fiscal 2020: Adjusted EBITDA of $102.3 million on revenue of $441.5 million.
Learn more about Green Thumb: Website | IR Website | Investor Deck | GTII Chart
Curaleaf (CSE: CURA) (OTCQX: CURLF)
- Analyst: Russell Stanley | Beacon Securities
- Rating: Reiterated | ‘BUY’
- Price Target: Maintained | $22 per share
- Today’s Close: $5.04
- Implied ROI: +336.51%
Stanley’s Comments
“Based on the results of the quarter and management’s comments during last [week’s] conference call, we have reduced our 2020 revenue/EBITDA forecast from $876 million/$256 million to $686 million/$148 million. These revisions were primarily driven by reduced estimates for Florida (reflecting supply constraints through mid-2020), Grassroots (noted above), Select, Massachusetts and Nevada.”
“While the extent of COVID-19’s negative impact on the U.S. economy remains TBD, we note that cannabis demand has remained resilient to date, reflecting its importance to patients/consumers. We are therefore limiting our forecast changes to 2020 for now.”
Earnings Forecast
- None provided.
Learn more about Curaleaf: Website | IR Website | Investor Deck | CURA Chart
Cronos Group (TSX: CRON) (NASDAQ: CRON) (FRA: 7CI)
- Analyst: Rahul Sarugaser | Raymond James
- Rating: Reiterated | ‘Outperform 2’
- Price Target: Lowered | $12 to $10.50 per share
- Today’s Close: $7.72
- Implied ROI: +36.01%
Sarugaser’s Comments
“We do not believe this will be the end of a US-based, value-consumer CBD product line that leverages the MO distribution framework, but given CRON’s announcement and the current health crisis, we are pushing out the launch of Peace+ by one year. This revelation drove the most significant changes to our estimates.”
“We are confident CRON will emerge from this crisis strong given its partner and balance sheet and will find itself in an environment of reduced competition, especially in Canada. Our assumption that CRON would capture 12 percent of Canadian cannabis market share remains. But, the material change in the course of its US operations (Peace+pause), we’ve adjusted our estimates downward.”
CRON Earnings Forecast
- None provided.
Learn more about Cronos Group: Website | IR Website | Investor Deck | CRON Chart
Charlottes Web (TSX: CWEB) (OTCQX: CWBHF)
- Analyst: Jason Zandberg | PI Financial
- Rating: Reiterated | ‘BUY’
- Price Target: Lowered | $11.50 to $10 per share
- Today’s Close: $5.99
- Implied ROI: +66.94%
Zandberg’s Comments
“The competitive landscape within the CBD market negatively impacted CWEB’s growth rate and that the lack of regulatory clarity on the currently grey market CBD industry in the United States has created confusion for consumers who are unable to verify the quality or quantity of CBD within each product.”
“Management indicated that Q1 FY20 revenue will be $20.0 million (-12% qoq). We expect the Abacus transaction to close in Q3, which should add $12.7 million in the last two quarters. We do anticipate FY21 should provide good growth as we believe many of the current competition will not survive the near-term economic weakness.”
CWEB Earnings Forecast
- Fiscal 2020: Revenue of $113 million and EBITDA of negative $16 million.
- Fiscal 2021: Revenue of $169 million and EBITDA of $28 million.
Learn more about Charlotte’s Web: Website | IR Website | Investor Deck | CWEB Chart
HEXO Corp. (TSX: HEXO) (NYSE: HEXO) (FRA: 74H)
- Analyst: David Kideckel | AltaCorp Capital
- Rating: Reiterated | ‘Underperform’
- Price Target: Maintained | $1.05 per share
- Today’s Close: $1.03
- Implied ROI: +1.94%
Kideckel’s Comments
“We believe that HEXO is facing a storm of negative conditions which add significant uncertainty to its outlook and may thwart the Company’s ability to execute its business strategy in the near-to-medium term.”
“While cannabis as a whole remains an ‘essential service’ across Canada, these negative conditions include headwinds associated with a poor cannabis retail infrastructure in Canada, oversupply, lack of derivative products available, and overall negative economic conditions caused by the COVID-19 pandemic.”
HEXO Earnings Forecast
- Fiscal 2020: Revenue of $63.2 million and adjusted EBITDA of negative $290.0 million.
- Fiscal 2021: Revenue of $91.5 million and adjusted EBITDA of $5.8 million.
Learn more about HEXO: Website | IR Website | Investor Deck | HEXO Chart
Cardiol Therapeutics (TSX: CRDL) (OTCQX: CRTPF)
- Analyst: Rahul Sarugaser | Raymond James
- Rating: Reiterated | ‘Outperform 2’
- Price Target: Maintained | $6 per share
- Today’s Close: $2.71
- Implied ROI: +121.4%
Sarugaser’s Comments
“During 2019, CRDL was a pre-revenue company focused on scaling up manufacturing of its ultra-pure pharmaceutical CBD formulations (done) and focused on structuring its gold-standard clinical trials that investigate these formulations in the clinical context of heart disease (in full swing). A lot has changed since 2019, however.”
“We expect SG&A and marketing costs to increase during 2020 as CRDL begins sales through Shoppers and launches its engagement with Canadian paediatric neurologists and gerontologists (for sales of its pharmaceutical CBD formulations) in earnest. We also anticipate escalating clinical trial costs beginning 1Q20, continuing into 2021. CRDL has two quarters of cash remaining, so we anticipate that the company will need to raise money in the near-term. (Our models price in a $20 million capital raise executed at $4.00 per share plus a half warrant).”
CRDL Earnings Forecast
- Fiscal 2020: Q2, Q3 and Q4 revenues of $320,000, $480,000 and $690,000 respectively.
Learn more about Cardiol: Website | IR Website | Investor Deck | CRDL Chart
Village Farms (TSX: VFF) (NASDAQ: VFF) (FRA: 02V)
- Analyst: Rahul Sarugaser | Raymond James
- Rating: Reiterated | ‘Outperform 2’
- Price Target: Maintained | $11 per share
- Today’s Close: $3.66
- Implied ROI: +200.55%
Sarugaser’s Comments
“PSF has generated positive adjusted EBITDA during the last four consecutive quarters: a stand-out among Canadian LPs. Given the headwinds that PSF/VFF have faced in 4Q19, our opinion is that it will be difficult to maintain this streak. For now, we’re projecting a slight EBITDA loss of ($0.1) million.”
“VFF now gets to recognize even more of PSF’s cannabis revenue—VFF’s most lucrative vertical—given its strengthened equity position in the JV. We foresee VFF taking steps to use its majority stake further dilute EMH’s equity in PSF, eventually taking full control.”
VFF Earnings Forecast
- None provided.
Learn more about Village Farms: Website | IR Website | Investor Deck | VFF Chart
Harvest Health (CSE: HARV) (OTCQX: HRVSF)
- Analyst: Kenric Tyghe | AltaCorp Capital
- Rating: Reiterated | ‘Outperform’
- Price Target: Lowered | $10.50 to $6 per share
- Today’s Close: $1.14
- Implied ROI: +426.32%
Tyghe’s Comments
“Given the clock was ticking on the deal termination deadline and the fact government and regulatory bodies have been effectively shut down in key states due to the virus pandemic, this was a race that couldn’t be finished in the allotted time. We believe that the teams remain on very good terms (some of the key personnel who had already transitioned will stay in place), and that this transaction could ultimately be revisited when market and macro conditions improve.”
“While we are mindful that Harvest’s team could remain in the penalty box for a period, we believe that Harvest’s portfolio and positioning in key states supports a premium valuation.”
HARV Earnings Forecast
- Fiscal 2020: Revenue of $341 million and adjusted EBITDA of $84 million.
- Fiscal 2021: Revenue of $496 million and adjusted EBITDA of $141 million.
Learn more about Harvest Health: Website | IR Website | Investor Deck | HARV Chart
Charts Source: Barchart
The Most Anticipated U.S. MSO IPO of 2020 is Drawing Near
The Cannabis Sector is Long Overdue for a High-Profile IPO
The Wait is Nearly Over, TCI’s MSO IPO of 2020 is Almost Here
Get Your Copy of The Ultimate Cannabis Investing Guide
Join the Discussion in the TCI Investor Group
Disclosure: The Cannabis Investor does not hold a position in any of the stocks mentioned in this article.
Read More:
Featured ArticlesCannabis Stock NewsCannabis Industry ArticlesTechnical Analysis ArticlesWatch Cannabis Stock Videos