By Ciara Linnane, MarketWatch
Cannabis stocks enjoyed a second straight day of strong gains Friday, led by Aurora Cannabis Inc., on growing expectations that Democrat Joe Biden will win the 2020 presidential race and lead a reform effort that will put a spark under the still nascent sector.
“While Tuesday night’s election did not clearly show who America thinks should lead the nation, it did make clear that we are united on replacing our country’s archaic cannabis laws,” said the Cannabis Consumer Policy Council.
With the election now over, “we look forward to working with our coalition members to help ensure that cannabis consumers have a voice at the policy negotiating table and in the political process,” it said in a statement.
The sector is still celebrating election night’s green wave when four states — Arizona, New Jersey, Montana and South Dakota — voted to legalize adult-use cannabis, and a fifth, Mississippi, approved medical marijuana. More than 111 million Americans, or 33.8% of the population, now live in states where pot has been approved for legal purchase by all adults.
Biden and his Democratic running mate, Sen. Kamala Harris, have voiced support for decriminalizing marijuana on a federal level. Incumbent President Donald Trump has previously voiced support for decriminalizing marijuana but has not openly endorsed Democratic pushes in Congress for pro-marijuana initiatives such as the SAFE Banking Act. Biden had taken a lead Friday in all four states that have not yet been called. Trump’s first attorney general, Jeff Sessions, was a staunch cannabis opponent.
Aurora Cannabis /zigman2/quotes/210559470/composite ACB -5.62% , /zigman2/quotes/203734337/delayed CA:ACB -6.11% the most widely held stock on the Robinhood trading app, was up a stunning 66% Friday, although it remains deep in the red for the year-to-date. The Canadian cannabis sector was struggling from a shortage of retail outlets and thriving black market before the pandemic hit, although weed was in demand during the crisis.
Cronos Group Inc. shares /zigman2/quotes/206842762/composite CRON -5.20% /zigman2/quotes/202715342/delayed CA:CRON -5.98% rose 17% as analysts weighed in on earnings reported a day ago. MKM Partners’ Bill Kirk said the numbers were largely in line with expectations, with a little better-than-expected performance in Canada offset by a little worse-than-expected performance in the U.S. Kirk rates the stock a buy with a C$11 price target that is 11% above its current price.
Raymond James said the key thing is that Cronos’ war chest of $1.1 billion in cash remains intact, “which we see fueling the execution of its plans for new product innovation, new brand launches and expansion, and, eventually, material revenue escalation,” analyst Rahul Sarugaser wrote in a note to clients. That money is courtesy of an investment from tobacco giant Altria Inc.
“So, we expect modest but steady growth through 1H21, with an inflection point in ~2H21 engendered by enhanced U.S. sales traction, and we project margins to widen as CRON’s fermented cannabinoids begin to be introduced throughout its on-market product set (higher sales price and lower cost),” said Sarugaser. Raymond James rates Cronos as outperform.
Canopy Growth Corp. /zigman2/quotes/200603886/composite CGC -4.28% , /zigman2/quotes/202205609/delayed CA:WEED -4.76% the biggest of the Canadian licensed producers by market cap, was up 12.3%, ahead of quarterly earnings expected next Monday.
Aphria Inc. shares were up 6%. The company on Wednesday announced plans to acquire Atlanta’s Sweetwater Brewing Co. for at least $300 million, marrying a long-serving craft brewer known for its “420”-labeled beer with the pot industry.
Elsewhere in the sector, Akerna Corp. /zigman2/quotes/202667634/composite KERN -8.36% , a provider of software to cannabis companies, rallied 22%, while Curaleaf was up 7%. Cresco Labs Inc. /zigman2/quotes/205276242/delayed CA:CL -2.34% rose 4%, OrganiGram Holdings Inc. /zigman2/quotes/209289540/lastsale OGI -8.73% was up 23% and Hexo Corp. /zigman2/quotes/206508254/composite HEXO -1.50% /zigman2/quotes/200008967/delayed CA:HEXO -2.46% was up 27%.
The Cannabis ETF /zigman2/quotes/213173823/composite THCX -4.80% was up 11% but is down 8% in the year to date, while the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.04% has gained 8% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.10% has fallen 0.6%.