Wall
Street’s top cannabis analyst believes U.S. sales of marijuana will
rise more than she previously projected to $80 billion by 2030 and
told clients to expect major Canadian growers Canopy Growth and
Tilray to outperform in 2019.
“We
expect continued growth in newly established U.S. states, and more
robust growth in Canada as more supply comes online and new form
factors hit the market,” Cowen analyst Vivien Azer wrote Tuesday.
“Given our outlook for continued strong growth in North American
cannabis in 2019, we remain constructive on all three of our
publicly traded cannabis stocks,” including Canopy, Tilray and KushCo, an
American company that sells packaging for the cannabis
industry.
Azer is
a widely followed analyst of the industry and one of the few from a
major firm which covers the industry. Her previous forecast for
U.S. cannabis sales by 2030 was $75 billion.
Cannabis
companies will likely see strong growth rates the next five years,
Cowen managing director says
After
months of political haggling and legal debate, Canada became the
first Group of Seven country to OK recreational use of pot on Oct.
17. But despite the excitement surrounding national legalization,
Azer said that the adult-use market got off to a rocky start thanks
to a rushed retail framework (e.g., no stores in Ontario) and
insufficient supply available.
Still,
as Canadian legislatures gradually legalize new forms of cannabis
consumption, planned production expansion should be enough to ease
those early concerns.
“With
the market set to expand to include novel form factors, and with
expanded retail access, we remain encouraged at the market’s
potential for growth in 2019, where we expect adult use sales (at
retail) to total C$3.1 billion (including taxes),” Azer
said.
Specifically,
Tilray and Canopy Growth should finally start to see the positive
effect the adult use market will have on sales. Reported revenue at
both companies may have disappointed some investors when Canopy and
Tilray posted quarterly results last fall, though the true impact
of the legalization was not reflected in those
results.
Though
shares of both Tilray and Canopy are up in 2019, the stocks are off
by more than 40 percent over the last three
months.
Azer
expects a “material increase” in revenue at Canopy throughout 2019
as supply challenges are addressed. The analysts sees sales jumping
from C$239 million in fiscal 2019 to C$778 million in fiscal 2020,
a 225 percent rally.
“We remain
confident in Canopy’s ability to generate such vibrant sequential
growth based on the company’s seemingly leading share in the
market,” Azer wrote. Based on her e-commerce analysis, the Smiths
Falls, Ontario-based company has a leading 18 percent share of all
available units in the market.
Things are
looking up for Tilray, too, including the company’s recently
expanded relationship with Sandoz (a subsidiary of Novartis).
CEO Brendan Kennedy said in a December statement that the
“agreement represents a major milestone in the movement to provide
access to safe, GMP-certified medical cannabis to patients in need
across the world.”
The company
plans to work with Sandoz to supply nonsmokable and noncombustible
medical cannabis products where it is legally allowed. Tilray has
also said it would partner with global beer giant ABU in Canada,
pushing Cowen’s revenue estimate to C$120 million in calendar
2019.
“We continue to
view the international medical market as one of the primary
investment highlights for Tilray, which currently operates in 12
countries,” Azer wrote. Its “expanded partnership with Sandoz can
help expand reach with pharmacists, physicians and distributors in
Tilray’s markets, while capturing early share in new medical
cannabis markets as they come online.”
While cannabis
in the United States remains federally illegal, the U.S. market
opportunity is quite sizable, according to Azer, with the current
illicit market valued at around $40 billion to $50 billion and
expected to flourish over the next decade. Sixty-six percent of
survey respondents now support legalizing marijuana, according
to the latest Gallup poll. That’s a record high and was
the third consecutive year that support for legalization has
increased to record levels.
Cannabis
represents a “opportunity” for big tobacco as more and more U.S.
states join those that have already OK’d the adult recreational use
of cannabis. Cowen looks to North Dakota, Louisiana and West
Virginia to come online and highlights Ohio, Florida and
Pennsylvania as additional key states to watch.
HEMP is now legal in
USA
The $867 billion
farm bill, which was signed into law by President Donald Trump on
Dec. 20, includes a provision for industrial hemp legalization that
Senate Majority Leader Mitch McConnell, R-Ky., had introduced. The
provision removed industrial hemp from the federal government’s
list of controlled substances, making
it a lawful agricultural commodity.
“After passage of the Farm Bill, CBD will
clearly be one of the most topical areas within cannabis over the
coming year,” Azer wrote. “We expect the category could generate
$1.6 billion in revenues over the next year or two, depending on
the timing of FDA commentary and the pace of retail
acceptance.” In response to the passage of the
farm bill, Canopy CEO Bruce Linton told CNBC that it represents
a key
“first step” toward the company’s expansion into the U.S.
market.
The Food and Drug
Administration later said that it is looking
for “pathways” to legalize the sale of CBD oil and other
cannabis-based compounds in food and beverages in a move that could
remove one of the last remaining legal hurdles for companies hoping
to sell such products across state lines.
