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Stifel: Green Thumb, Curaleaf Best 2020 Cannabis Stock Picks

Cannabis analysts at Stifel expect a rebound in the first half of this year after an array of disasters struck marijuana stocks in 2019.

Barron’s reported that Stifel thinks "Ontario store openings should uncork a Canadian bottleneck, while U.S. operators will grow out of the shadow of their stumbling northern counterparts.

Stifel and its newly acquired Canadian affiliate GMP "see upside for smaller outfits like Fire & Flower Holdings (FAF. Canada). The stocks of American pot sellers were caught in the downdraft, but their steady growth let them raise capital in debt markets even as equity funding shriveled.," Barron's explained.

Stifel’s favorite U.S. operators are Green Thumb Industries (GTII. Canada) and Curaleaf Holdings (CURA. Canada).

"The fact that pot is illegal under federal law forced U.S. operators to go to Canada for stock listings. Their shares were dragged down some 40%, on average, in the sector’s selloff last year," Barron's said.

Retail sales jumped, with the market doubling in many states. Stifel expects growth to continue in 2020 at a rate of at least 25%, powered by new recreational markets such as Illinois, Barron's said.

Well-funded operators are likely to thrive in that robust American cannabis environment, Stifel believes. It has "buy" recommendations on Trulieve Cannabis (TRUL. Canada), Cresco Labs (CL. Canada), TerrAscend (TER. Canada), iAnthus Capital Holdings (IAN. Canada) and Harvest Health and Recreation (HARV. Canada).

Meanwhile, marijuana ETFs stumbled into 2020, adding to woes for investors who got burned last year trying to chase a one-time market darling, Bloomberg reported.

The ETFMG Alternative Harvest ETF, ticker MJ, sank 1.3% on the first day of the year, while broad market indexes rallied to fresh records. The drop continued a nine-month swoon for the exchange-traded fund that only a year ago was attracting money by the bushel on speculation the industry would continue its meteoric rise.

It ended last year down 30% for one of the worst returns among all ETFs as the companies it tracks delivered dire sales and profit warnings.

The ongoing struggles for cannabis ETFs are a sharp blow to retail investors who tried to get in on the frenzied marijuana boom that began two years ago after Canada and California deregulated production. Instead of a ride straight up, they got the bust part of the cycle that often characterizes nascent industries.