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Feb. 15, 2020, 9:15 a.m. EST

Canopy’s stock roars higher after better-than-expected earnings, sparks broad rally in cannabis sector

Report is a ‘beacon of hope’ for the beaten-down sector, says MKM analyst Bill Kirk

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By Ciara Linnane, MarketWatch

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“Now that Aurora has right sized its business, we think concerns about the solvency of the company should subside. While it may take the remainder of F20 (June) for investors to regain confidence in the company, we expect that this will occur over time,” he wrote.

Other Canadian licensed producers were swept up in the positive wave, with Tilray /zigman2/quotes/209129655/composite TLRY -2.80%  up 8%, Cronos /zigman2/quotes/206842762/composite CRON -2.01%   /zigman2/quotes/202715342/delayed CA:CRON -1.82%  gaining 7% and OrganiGram /zigman2/quotes/209289540/lastsale OGI -2.14%  up 9%. Aphria   gained 6% and Hexo /zigman2/quotes/206508254/composite HEXO -3.28%   /zigman2/quotes/200008967/delayed CA:HEXO -4.62%  was up 3%.

CannTrust Holdings Inc.’s stock  rose 8%, after it said it plans to submit documents to regulators that detail how it has fixed the issues at its Niagara, Ontario facility and in support of the reinstatement of its license there. The company said that it plans to finish efforts to fix a second site at Vaughan, Ontario in the second quarter of 2020. CannTrust was growing pot illegally at the Niagara facility, and the Vaughan facility was not compliant with standards, regulators have alleged.

U.S. cannabis stocks also got a boost after Cantor Fitzgerald initiated coverage of 10 U.S. multistate operators (MSOs), saying they are attractively valued with solid fundamentals.

“The current regulatory environment in key large U.S. “restricted” states (in terms of limited licenses granted) provides a unique opportunity for U.S. MSOs to build out assets with a limited pool of competitors and be in a position of strength (scale, financial) when full legalization comes,” analyst Pablo Zuanic wrote in a note to clients. “The boom and bust seen in Canadian stocks has, unwarrantedly, dragged down U.S. MSOs also and masked strong underlying growth trends.”

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After Canada became the second nation in the world to legalize recreational marijuana, the cannabis industry is betting on edibles and beverages to drive future growth.

Zuanic initiated coverage of Cresco Labs Inc. /zigman2/quotes/200392306/delayed CRLBF +2.01%   /zigman2/quotes/205276242/delayed CA:CL +1.89%  and Trulieve Cannabis Corp. /zigman2/quotes/207658767/delayed TCNNF -2.50%  with overweight ratings, assigned neutral ratings to Acreage Holdings Inc. , AYR Strategies Inc. , Curaleaf Holdings Inc. /zigman2/quotes/205334348/delayed CURLF +0.79% /zigman2/quotes/203485866/delayed CA:CURA +1.15%  , Green Thumb Industries Inc. /zigman2/quotes/200716694/delayed GTBIF -1.74% , Harvest Health & Recreation Inc.  ,  iAnthus Capital Holdings Inc. /zigman2/quotes/201709321/delayed ITHUF -9.08% and MedMen Enterprises Inc. /zigman2/quotes/201940908/delayed MMNFF -3.29% , and rated Green Growth Brands Inc. /zigman2/quotes/204912440/delayed GGBXF 0.00% at underweight.

Trulieve has “best-in-class financials, 50% share in Florida (one of the fastest-growing med markets in the U.S.), superior execution (it outsells Curaleaf by 5 times in Florida with 1.5 times more stores) and seeks to grow in other states,” the analyst wrote. “On fundamentals, we like both Cresco Labs and Green Thumb (neutral), but think the former offers, for a lower valuation, a more attractive state mix, more depth over breadth (so IL and PA do not get diluted), and higher margins.”

The ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ -2.05%  was up 5%, with 14 of its 25 components trading higher. The Horizons Marijuana Life Sciences ETF /zigman2/quotes/208856346/delayed CA:HMMJ -1.31%  was up 7%, with 45 of its 54 components gaining.

The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.15%  was flat and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.38% was down 0.1%.

Cannabis Watch: For all of MarketWatch’s coverage of cannabis companies: Click here

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Dividend Yield
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Market Cap
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Jan. 26, 2022 3:59p
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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.

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