When looking for stocks to light up a portfolio, the cannabis sector might not be the first place that comes to mind. Those following the industry have seen the situation go from bad to worse, with high tax rates and supply issues bogging down the U.S. market.
Meanwhile, its neighbor to the north in Canada hasn’t been fairing much better. Regulatory-based issues with supply have led to widespread shortages and bottlenecks. The situation also isn’t helped by the fact that several names in the marijuana game are struggling with financing.
However, Wall Street pros remind investors that while the industry as a whole is certainly facing headwinds, there are still some hidden gems capable of delivering hefty returns. With this in mind, we used TipRanks’ Stock Screener tool to zero in on five cannabis stocks flagged by analysts as compelling plays. Not to mention all of the tickers boast serious upside potential from the current share price.
Let’s dig in.
Trulieve Cannabis (TCNNF)
Based in Florida, Trulieve Cannabis Corporation (OTHER OTC:TCNNF) prides itself on being a trustworthy cannabis producer. All of its plants are grown in an environment that was designed to reduce unwanted chemicals and pests, keeping the process as natural as possible.
The vertically-integrated company is a significant player in the space; it is Florida’s top cannabis provider, boasting 43 dispensaries in the state as well as operations in Connecticut, California, and Massachusetts. When evaluating how the competition stacks up, its peers trail behind. Surterra, its closest competitor, only operates 37 stores. On top of this, the company’s THC and CBD market share lands at 51%, coming in miles ahead of other cannabis names.
Looking at Trulieve’s performance, it is no wonder it has earned a reputation as a standout. Even though smokable flower has only been available since the second half of 2019, the company saw yearly sales reach 9,600 pounds. Just for reference, Ohio’s entire cannabis market sold 7,000 pounds of all types of cannabis in 2019.
According to PI Financial analyst Jason Zandberg, Trulieve is on the right track, having been able to scale and replicate its success in regions beyond the state of Florida.
“We believe management has effectively anticipated market changes in the past and quickly executed. We believe that the next phase in the Florida market will likely be the introduction of edibles which Trulieve is currently prepared to commence manufacturing for this product category…Although we expect its competition to build more dispensaries within this lucrative market, Trulieve’s first moving advantage will likely enable it to secure the best locations and build long-term brand awareness,” Zandberg explained.
It makes sense, then, that the analyst left his “buy” call and $15.05 price target unchanged. Should the target be met, shares could be in for a twelve-month gain of 53%.
Cresco Labs (CRLBF)
Cresco Labs (OTHER OTC:CRLBF) offers its customers a diverse portfolio of brands to meet a variety of different needs. The company, which is based in Chicago, is vertically-integrated and has interests in 11 states and 21 dispensaries with licenses for an additional ten, in addition to cultivation and manufacturing operations.
Cresco is unique with respect to its position in the state of Illinois as it operates more licensed cultivation and manufacturing facilities than other producers in the state, with the state only kicking off legal recreational adult-use marijuana use at the start of 2020. Adding to the good news, it can further expand its presence in the state thanks to a new credit facility that includes an initial amount of up to $100 million as well as the option to increase the loan.
Outside of Illinois, Ladenburg Thalmann analyst Glenn Mattson argues that New York, Pennsylvania, Arizona and Ohio, all high population states that are medical only, could make the shift to adult recreational marijuana in 2020 and 2021, which bodes well for Cresco. Additionally, the adult recreational market is expected to increase from $250 million in 2019 to over $2 billion over the next few years.
With this in mind, Mattson started his coverage of CRLBF by publishing a bullish call. At $8, his price target implies that shares could climb 74% higher over the next twelve months.
What does the rest of the Street have to say? It turns out that other analysts have also been impressed with the cannabis name. With five “buys” compared to no “holds” or “sells,” the word on the Street is that CRLBF is a “strong buy.” In addition, the $11.12 average price target puts the upside potential at 141%.
Green Thumb Industries (GTBIF)
Developing products for both medical and legal use, Green Thumb Industries (OTHER OTC:GTBIF) has made a name for itself as a credible and experienced provider of cannabis. While shares have shed 24% year-to-date, Ladenburg Thalmann’s Glenn Mattson, who also covers this cannabis stock, sees big things in store.
As another Chicago-based cannabis company, Green Thumb stands to benefit from Illinois’ recent legalization. Already boasting $161 million in sales over the past four quarters and 41 stores in the U.S., the Illinois’ market alone could see its value hit $2.5 billion at maturation. Additionally, the company was able to post positive EBITDA of $14.1 million in its latest quarter.
That being said, Mattson points to Green Thumb’s “impressive” footprint buildout in not only Illinois but Pennsylvania and New Jersey as being an encouraging sign. On top of this, he believes it has a “compelling opportunity” when cannabis is legalized on a broader scale, arguing that the probability of this taking place is high.
It should come as no surprise, then, that Mattson kicked off his GTBIF coverage by publishing a “buy” rating. The four-star analyst set the price target at $13, implying that shares could rise 76% over the next twelve months.
In general, other analysts take a similar approach when it comes to Green Thumb. Four “buy” ratings and a single “hold” received over the last three months add up to a “strong buy” analyst consensus. To top it all off, the $17.24 average price target implies 133% upside potential.
Fire & Flower Holdings (FFLWF)
Hot on the heels of a deal with a significant point of sale (POS) name in the marijuana industry, Fire & Flower Cannabis Company (OTHER OTC:FFLWF) has attracted attention from the Street.
In January, Fire & Flower announced that its wholly-owned subsidiary Hifyre and POS company Cova Software Solutions reached a strategic license agreement. Based on the terms of the agreement, Cova, which is used in more than 500 cannabis stores in the U.S. and Canada, will allow its customers to access the Hifyre digital retail platform, which includes the Spark Perks program and the Fastlane “click-and-collect” service, as well as Cova’s own point-of-sale software.
President of Hifyre Matthew Hollingshead stated that the deal will see the commercialization of its platform ramp up in growing cannabis markets. Additionally, David Kideckel of AltaCorp Capital believes the collaboration could help the company expand its reach in the U.S. market and improve its advanced technology standing in Canada.
“Fire & Flower remains our top pick in the Canadian cannabis retail space. In our view, the agreement with Cova supports Hifyre’s expansion in the Canadian and International cannabis markets and places Hifyre as the industry’s best-in-class digital retail platform. In addition, it provides a venue for Fire & Flower to monetize Hifyre’s capabilities further and increases revenues from its high-margin digital retail business segment,” Kideckel explained.
Given everything that the cannabis company has going for it, Kideckel remains in Fire & Flower’s corner. Along with his “buy” rating, his $2.10 price target implies that shares could skyrocket 320% over the next year.
Out on Wall Street, Kideckel’s opinion is echoed by other analysts. As four “buys” and no “holds” or “sells” were issued in the last three months, the consensus rating comes in as a unanimous “strong buy.” At $1.86, the average price target indicates 273% upside potential.
GW Pharmaceuticals (GWPH)
Shifting now to the biopharma sector, we have GW Pharmaceuticals (NASDAQ:GWPH). The company has become a market leader in plant-derived cannabinoid therapeutics, with its Epidiolex therapy already having been approved for use in patients with seizures associated with Lennox-Gastaut syndrome or Dravet Syndrome, two rare childhood-onset forms of epilepsy. This approval was monumental as it was the first cannabis-based treatment to receive FDA approval.
While its Q4 earnings release was somewhat uneventful as it announced preliminary results a month before, Needham’s Serge Belanger notes that there was one major takeaway. Management stated that in 2020, OpEx is expected to be within the range of $530 million to $560 million, which would be higher than its $403 million result in 2019 as well as most investors’ estimates.
“The OpEx increase reflects GWPH‘s extensive pipeline activities and the investments behind Epidiolex’s EU launch and tuberous sclerosis complex (TSC) label expansion,” Belanger commented. The analyst added, “GWPH’s main value driver will be Epidiolex’s sales growth trajectory, and while current Street expectations (~$536 million in total sales) are not unrealistic, expectations for a flat 1Q20 imply a significantly back-loaded sales progression driven by the TSC label expansion.”
Bearing this in mind, Belanger kept the “buy” rating as is. However, the four-star analyst did cut the price target from $200 to $190, but this still leaves room for a possible twelve-month gain of 78%.
Like Belanger, the rest of the Street likes what it’s seeing. 100% Street support, or 11 “buy” ratings to be precise, makes the analyst consensus a “strong buy.” Not to mention the upside potential lands at 80% thanks to the $192.40 average price target.