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Aurora vs Canopy vs Charlotte’s Web: Which Cannabis Stock Will Outperform the Rest?

It’s clear that the seeds for future growth have been planted in a budding cannabis space. According to Grand View Research, the global legal marijuana market is expected to reach $66.3 billion by 2025, with many investors hoping to get in on the action.

That being said, it hasn’t necessarily been smooth sailing for cannabis stocks this year. A few have actually seen growth slow with some being weighed down by tax concerns in the U.S. and supply-side issues. For example, Tilray (TLRY) has plummeted 61% year-to-date.

With that in mind, analysts say that some cannabis stocks look more poised to soar than the rest. We wanted to take a closer look at 3 of the top players in this space to see which cannabis stock Wall Street analysts believe will come out on top.

Let’s dig in.

Aurora Cannabis Inc. (ACB)

With shares falling 31% in the last three months, investors are wondering what is going with Aurora.

The cannabis company still has a way to go before it sees a profit. While Aurora hasn’t posted results for fiscal Q4 2019 yet, it did report a CA$158.4 million loss in fiscal Q3. However, management pointed out that several positive initiatives have placed Aurora on the road towards profitability.

The company has made substantial efforts to improve the scale of its business, with Aurora already leading the industry when it comes to production capacity. Currently, production is on track to reach 625,000 kilograms of cannabis per year.

Aurora wants to improve this figure by bringing industrial scale to its growing facilities. Management hopes to accomplish this through the ramping up of its Sky and Sun locations. Not to mention these facilities could bring production costs down, with Sky’s production costs expected to be less than $1.00 per gram.

The company will also start to develop new technology, genetics and intellectual property at two new test facilities in order to drive sustainable and high-quality outdoor production.

Based on the reduction of its operating costs and improved product offerings from its superior facilities, Ladenburg Thalmann & Co. analyst Glenn Mattson believes Aurora has the advantage over its competitors. As a result, he initiated coverage with a Buy and set a $9 price target on July 17. The four-star analyst thinks share prices could surge 61% over the next twelve months.

All in all, the Street is cautiously optimistic about ACB. It has a ‘Moderate Buy’ analyst consensus and a $9 average price target, suggesting 56% upside potential.   

Canopy Growth (CGC)

The next cannabis stock on our list has also been the target of negative media sentiment after it reported a C$1.28 billion loss in its first fiscal quarter of 2020 as well as missed analyst estimates for revenue on August 15.

That’s not to say that analysts have given up on Canopy, with some telling investors they will just have to be patient.

It’s important to note that Canopy stands to benefit from the 2.0 market, or Canada’s plan to let cannabis producers add popular vapes, edibles and infused beverages to be sold legally later this year. “The Canadian space is about to gain a fair amount of pricing power, in our view, as the 2.0 market opens up late this year,” Seaport Global analyst Brett Hundley explained.

The company has taken several steps forward in its journey towards profitability. In an effort to expand its 30% stake in the Canadian adult recreational cannabis market, Canopy has made a significant investment in production and retail. The analyst believes the strengthening of its brand leading up to the launch of its edibles in late-fall was an especially important step in the right direction.

“We think Canopy can regain some lost share of shelf, as it leverages R&D, IP and partnerships to bring leading value-added products to market,” Hundley added.

It doesn’t hurt that Canopy has placed a focus on growing its customer base outside of Canada. Over the last few years, new facilities have been built to enable production in Germany, Denmark and the U.S. Once they become fully operational, they are expected to drive significant revenue.

All of these factors played into Hundley’s Canopy ratings boost. On August 26, the one-star analyst upgraded CGC from a Hold to a Buy and raised his price target to $31, suggesting 28% upside potential.

Wall Street isn’t quite as bullish. CGC has a ‘Moderate Buy’ analyst consensus as well as a $42 average price target, implying 73% upside potential.

Charlotte’s Web Holdings Inc. (CWBHF)

Some analysts believe that the last stock on our list is uniquely positioned to soar as it doesn’t rely on legalization like other players in the space.

It already offers CBD products, including capsules and oil, in the U.S. The key here is that these products can also be shipped anywhere in the U.S., legally.

Even more exciting for investors, CWBHF is already profitable. On August 14, the company reported second quarter gross profit reached almost $19 million thanks to its products appearing in 1,926 additional retail locations, including CVS Health (CVS) and Kroger (KR), as well as new stock keeping units for gummies and its pets line. While this number is by no means huge, it is significant as the two previous stocks we mentioned have yet to achieve profitability.

Charlotte’s Web is also garnering praise for its selection of its new CEO, Deanie Elsner. The former executive at Kraft Heinz (KHC) and Kellogg (K) is widely viewed as a good fit in terms of where the company is now.

Based on all of these factors, Piper Jaffray analyst Michael Lavery believes the cannabis stock is well positioned to gain from what is expected to be major growth in the U.S. hemp CBD market. As a result, the one-star analyst initiated coverage with a Buy and set a $25 price target on August 12. Lavery thinks share prices could soar as much as 50% over the next twelve months.

The word on the Street is that Charlotte’s Web is a ‘Moderate Buy’. Its $25 average price target indicates 50% upside potential.

The Final Verdict

The results are in, with Wall Street betting on Canopy to soar the highest. While analysts still expect significant upside from Aurora and Charlotte's Web, CGC takes the top spot.

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