Cannabis companies are poised to take the consumer space by storm.
That’s at least the takeaway from Cowen analyst and cannabis bull Vivien Azer’s latest research note. Azer nearly tripled her revenue-growth based price target on Tilray (TLRY), the leading pot stock, to $172 from $62, maintaining an outperform rating. She also boosted her price target for Canopy Growth Corporation (CGC) to $82 from $74.
The “well-capitalized cannabis industry has been evolving rapidly” and looks poised to take on a larger total addressable market than originally forecast, Azer wrote in the note. “Given the nascent stage of global cannabis, we believe that revenue growth should serve as the primary valuation methodology.”
And this revenue growth will come from what she sees as four key verticals: adult use, beauty and nutraceuticals, over-the-counter pain and sleep and pharmaceuticals, she said.
“We believe that all four of these verticals represent large market opportunities,” she said. Consumer industry veterans “are beginning to embrace the broad market potential for cannabis as a global, multi-dimensional category, given the talent migration to cannabis.”
“Volatility is natural, be prepared”
Cannabis stocks have already seen benefits from melding in with consumer categories.
Earlier this year, Canopy Growth Corporation landed a $4 billion deal investment from Corona beer-maker Constellation Brands (STZ) earlier this year, sending shares soaring. And shares of peer group pot stock Aurora Cannabis (ACBFF) jumped just on reports that it was in exploratory talks with Coca-Cola for weed-infused beverages – no formal deal necessary.
“In the fast-evolving cannabis sector, dynamics can change quickly. The most recent example is beverage companies taking stakes in cannabis companies,” Azer said. “While that dynamic was not completely unexpected, the timing of it perhaps was, and served as a fresh catalyst for the stocks.”
Azer added that Canada’s upcoming launch of adult use and the United Kingdom’s legalization of medical use have also spurred interest in the space, especially among retail investors.
But with disruption comes volatility – it’s “natural, be prepared,” Azer wrote. And cannabis stocks have been no stranger to wild fluctuations.
British Columbia-based Tilray, crowned the biggest pot stock, has also been among the most volatile. In mid-September, shares peaked at prices of more $300 per share during intraday trading, and have more than halved since. CNBC’s Jim Cramer previously called the cannabis craze a “bubble,” and other investors said the volatility around the stocks was comparable to the frenzy around cryptocurrencies.
Shares of Tilray are still up more than 500% since July – when the company made its initial public offering – as of market close Monday.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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