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Aug. 30, 2022, 9:58 a.m. EDT

These cannabis stocks could benefit from adult-use cannabis legalization in Germany

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By Steve Gelsi

While it’s too early to predict winners and losers among U.S. and Canadian cannabis companies, some of these players are expected to see a boost in sales as Germany moves toward nationwide legalization, a cannabis stock analyst said Monday.

With the German adult-use market estimated at $12.6 billion, Cantor Fitzgerald analyst Pablo Zuanic on Monday said Aurora /zigman2/quotes/203734337/delayed CA:ACB +6.18% /zigman2/quotes/210559470/composite ACB +6.06% and Tilray /zigman2/quotes/209129655/composite TLRY +9.83% /zigman2/quotes/226578748/delayed CA:TLRY +9.63% rank as the best-positioned companies to benefit from the potential market, among the stocks that he covers.

Both Aurora and Tilray currently have production facilities in Germany to supply the medical cannabis market there, Zuanic pointed out.

“With uncertainty on the reform outlook for cannabis in the U.S., we suggest investors pay attention to Germany, as legalization there could result in significant upside for a few Nasdaq-listed cannabis stocks,” Zuanic said.

Zuanic reiterated an overweight rating on Aurora Cannabis and a neutral view on Tilray.

He said U.S. multi-state cannabis operators such as Curaleaf /zigman2/quotes/205334348/delayed CURLF +3.28% /zigman2/quotes/203485866/delayed CA:CURA +4.14% could also get a boost, with “consolidation probably accelerating in the lead-up to a recreational market.”

Zuanic reiterated a overweight rating on Curaleaf as well as Clever Leaves Holdings Inc. /zigman2/quotes/208217893/composite CLVR +12.96% , which supplies the German medical market from a grow operation in Portugal.

To be sure, no specific date for legalization has been declared by the government for Germany’s adult-use market.

Another major question remains over whether Germany will allow North American cannabis companies or others to export into the country. It’s more likely production will be limited to Germany or other EU countries, Zuanic said.

Zuanic estimated that sales could begin as early as 2024 if imports are allowed. If Germany relies solely on domestic production, Zuanic said it would likely take until early 2025 to supply the country’s estimated production of 400-plus tons.

Citing industry data, Zuanic said Aurora, Cannamedical Pharma GmbH, Canopy Growth Corp /zigman2/quotes/200603886/composite CGC +9.16% /zigman2/quotes/202205609/delayed CA:WEED +9.09% , Four20 Pharma GmbH and Tilray comprised more than 70% of the cannabis flower market in Germany over the last 12 months. Berlin-based Demecan also ranks as a domestic production licensee in Germany.

Meanwhile, Curaleaf announced plans on Aug. 9 to acquire a 55% stake in Four20Pharma for €19.7 million ($19.7 million), to boost its presence in Germany.

German Chancellor Olaf Scholz endorsed cannabis legalization when he was elected in late 2021. Over the summer, the country’s health ministry has been holding meetings over the issue, with more details on a rollout expected in the fall, according to a report from Politico.

Meanwhile, the performance of cannabis stocks overall has been weak, amid economic headwinds, oversupply in Canada and some U.S. states, and dim prospects for federal legalization in the U.S.

On a positive note, U.S. cannabis companies have at least managed to grow their revenue as more states open up adult-use cannabis programs.

The AdvisorShares Pure US Cannabis ETF /zigman2/quotes/220307682/composite MSOS +3.61% is down 53.6% in 2022, compared to a drop of 18.8% by the Nasdaq /zigman2/quotes/210598365/realtime COMP -0.18% . The Cannabis ETF /zigman2/quotes/213173823/composite THCX +4.55% is down by 55.3% and the Global X Cannabis ETF /zigman2/quotes/214261331/composite POTX +5.61% has fallen 50%.

Aurora Cannabis shares have lost 71.7% in 2022; Canopy Growth is off by 56.2%, and Tilray is down by 46.8%. U.S.-based Curaleaf is down 34.1%.

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