By Ciara Linnane, MarketWatch
Cannabis stocks were mostly higher Tuesday as the broader market rallied on an easing of China trade fears, with Aurora Cannabis a rare splash of red after Piper Jaffray initiated coverage with a neutral rating, citing its rich valuation.
Aurora /zigman2/quotes/210559470/composite ACB -2.84% /zigman2/quotes/203734337/delayed CA:ACB -5.04% , the most widely held stock of the Canadian licensed producers, fell 1.1% on the move before reversing those losses to trade flat. The rating stands in contrast to the equivalent of buy rating (outperform) that Piper assigned to five other cannabis names it started coverage of Tuesday. Analysts led by Michael Lavery said they lacked visibility on parts of their long-term strategic checklist.
“Aurora has a premium valuation relative to peers but less visibility on these key growth opportunities,” Lavery wrote, referring to Canada, the European Union, and the U.S. CBD and U.S. THC markets. The latter two are ingredients in the cannabis plant; CBD is nonintoxicating but widely held to have wellness properties, while THC is the ingredient that causes the high associated with cannabis.
“It has leading scale in Canada, but oversupply looks likely in 2020,” the analyst wrote. “EU-GMP certification at scale is a slow, opaque process and still pending, and without visibility on U.S. market entry (CBD or THC), Aurora’s relatively rich valuation does not yet look compelling to us.”
“We believe its partnership with Altria /zigman2/quotes/208895754/composite MO +3.29% provides important capital ($1.8B cash) and access into 230,000 U.S. retail outlets, as well as regulatory and vapor product expertise,” said Lavery. “We expect Cronos to have modest near-term revenues from Canadian cannabis production, but believe it has significant potential growth opportunities with CBD products in the U.S., including through its pending acquisition of the Lord Jones brand.”
Cronos shares rose 4.5%.
The analyst was similarly impressed with Charlotte’s Web /zigman2/quotes/205374221/delayed CWBHF -4.09% , the biggest CBD player in the U.S. measured by revenue. He acknowledged that FDA regulation of CBD is still evolving, presenting uncertainty to the category, “ but clarity on FDA regulation for other products could be a positive catalyst.
“We believe the U.S. CBD market could be an $8-15B market in five years. The emerging CBD category has very little brand equity now, but Charlotte’s Web appears to have an early lead and a strong e-commerce platform,” the analyst wrote. The stock was up 4%.
Piper also took a bullish view of CV Sciences stock /zigman2/quotes/205511268/delayed CVSI +25.49% , another CBD play that was up more than 9%, U.S. player Green Thumb Industries /zigman2/quotes/200716694/delayed GTBIF -2.34% , which surged 2.4% and Cresco Labs /zigman2/quotes/200392306/delayed CRLBF -3.10% , which was last up 8%.
Greenlane shares /zigman2/quotes/211319667/composite GNLN +6.12% rose 0.5% then turned lower to trade down 6%, after the vape and accessories distributor posted better-than-expected revenue for the second quarter. The company said it had a net loss of $3.2 million, after net income of $230,000 in the year-earlier period. Revenue rose to $53 million from $40.6 million, topping FactSet analysts’ estimate of $50 million.
Tilray shares /zigman2/quotes/209129655/composite TLRY -9.18% rose 3.3%, after Cowen reiterated an outperform rating on the stock and said the company is still in the early stages of ramping up domestic and international cannabis production and U.S. CBD.
“With increased supply and CBD product launches scheduled for 2H, we look for momentum to build over the back half of the year,” analyst Vivien Azer wrote in a note to clients.