With Amazon Inc. (AMZN) now actively supporting The Marijuana Opportunity Reinvestment and Expungement Act of 2021 (MORE Act)—federal legislation that would decriminalize cannabis at the federal level and enact criminal and social justice reforms—cannabis stocks are once again grabbing the limelight. On June 1, in a blog post, Amazon’s worldwide consumer division CEO Dave Clark said, “We hope other employers will join us, and that policymakers will act swiftly to pass this law.”
Support for marijuana legalization is at an all-time high now. Last month, Jerry Nadler, the U.S. House Judiciary Committee Chairman, reintroduced the MORE Act amid a strong cry for federal level reform from social justice advocacy groups and growing support for marijuana legalization at the state level. This, along with the U.S. Drug Enforcement Administrations’ recent announcement that it would be issuing licenses to several cannabis growing facilities, has made analysts extremely optimistic about the industry’s growth prospects.
Furthermore, analysts recently upgraded the ratings of prominent cannabis players Canopy Growth Corporation (CGC) and Tilray, Inc. (TLRY). And we think their diverse product portfolios and expansive distribution networks should help the stocks to deliver solid returns in the near term.
Canopy Growth Corporation (CGC)
Based in Smiths Falls, Canada, CGC is a cannabis operator that produces and sells cannabis and hemp-based products for medical and recreational purposes in Canada, the United States, and Germany. The company operates through Global Cannabis and Other Consumer Products segments, and sells its products under the Tweed, Quatreau, Deep Space and Spectrum Therapeutics brand names. MKM Partners upgraded CGC to ‘Buy’ from ‘Neutral’ last month.
In April, CGC signed a distribution agreement with Southern Glazer’s Wine & Spirits, the world’s leading distributor of beverage alcohol, under which CGC will leverage the company’s established distribution network to market its portfolio of CBD-infused beverages in the United States. This strategic partnership should enable CGC to reach consumers across the U.S and capitalize on the strong consumer interest in the CBD-infused beverage category.
Also in April, the company agreed with the Supreme Cannabis Company, Inc. to acquire all its issued and outstanding common shares for approximately $435 million. The acquisition is expected to strengthen CGC’s brand portfolio and solidify its position in the Canadian recreational market for cannabis.
CGC’s total revenue increased 38% year-over-year to CAD$148.4 million (US$122.54) in the fourth quarter, ended March 31, 2021. Its gross margin was 7% as compared to negative 85% in the fourth quarter of 2020. The company’s cash and short-term investments amounted to CAD$2.3 billion (US$1.90 billion) for this period, representing a CAD$0.3 billion (US$0.25 billion)increase from the same period last year.
A consensus EPS estimate for the fiscal period ending March 31, 2022, represents a 74.2% improvement year-over-year. The $649.32 million consensus revenue estimate for the next year represents a 29.1% increase from the same period last year. CGC’s stock has gained 43.9% over the past year.
Tilray, Inc. (TLRY)
Formerly known as Aphria Inc., Canada-based TLRY is a producer and distributor of medical cannabis and cannabinoids. The company sells hemp-based foods and alcoholic beverages, as well as medical cannabis in extracts and dried flower forms to patients, pharmacies, hospitals, governments, and physicians. Analysts at Cantor Fitzgerald upgraded TLRY to ‘Overweight’ from ‘Neutral.’
On June 8, the company launched Symbios to broaden its medical brand portfolio in Canada and provide patients with a comprehensive assortment of cannabinoid products to promote health, and wellbeing. This addition should allow the company to meet the needs and preferences of patients and drive sales growth.
Last month, TLRY and Aphria, Inc. completed a business combination, thereby creating the new “Tilray” in the global cannabis industry. Its renewed business strength should allow TLRY to fund its global expansion strategy and build the leading cannabis-focused CPG company.
TLRY’s total revenue increased 20.5% year-over-year to $56.56 million in its fiscal fourth quarter, ended December 31, 2020. The company’s cannabis segment revenue increased 46% year-over-year to $41.2 million. Its gross margin under the cannabis segment was 33% during this quarter versus 16% in the fourth quarter of 2019.
Analysts expect TLRY’s EPS for the quarter ending June 2021 to increase 89.2% year-over-year. The company’s revenue is likely to increase 70.3% for 2022. Over the past year, the stock has gained 111.6%.
CGC shares were trading at $25.71 per share on Thursday morning, down $0.03 (-0.12%). Year-to-date, CGC has gained 4.34%, versus a 13.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…