By Jeremy Berke , Yeji Jesse Lee , and Andy Kiersz, Business Insider (republished with special permission)
Insider asked the top analysts in the cannabis space about their favorite stock picks for 2022.
Top stock picks range from industry giants to cannabis tech companies.
Here are the 5 cannabis stocks analysts are favoring in 2022.
It’s been a rough ride for the cannabis industry this year, but there’s still plenty to be excited about for 2022.
A number of states, New York included, voted to legalize in 2021 — and others opened their doors to cannabis stores for the first time — but progress toward federal legalization has slowed, pushing stock prices down across the sector.
President Biden hasn’t followed through on his campaign promise to decriminalize marijuana, and lawmakers this month struck down an amendment that would allow cannabis companies to access the banking system.
As a result, investors have been disappointed. Indexes that track the cannabis industry have dropped significantly: The AdvisorShares Pure Cannabis ETF (MSOS), which tracks a basket of US cannabis stocks, has dropped nearly 40% this year, as of December 16. The Horizons Marijuana Life Sciences Index ETF, which tracks a broader basket of cannabis stocks, has dropped nearly 25% this year.
Still, Wall Street analysts say that the cannabis industry has long-term promise. Both red and blue states around the US are weighing legalization measures, along with multiple countries around the globe. And lawmakers in both parties have proposed legislation to legalize cannabis. Nearly two-thirds of Americans say cannabis should be legal, according to a Gallup poll conducted in October.
Analysts from the investment bank Cowen predict that the cannabis industry will become a $100 billion market by 2030, putting it on par with the beer industry today.
Analysts are broadly focused on US cannabis companies, known as multistate operators or MSOs, versus their Canadian counterparts like Canopy Growth or Tilray. In the US, federal law prohibits institutional investors, like large pension funds, from investing in MSOs.
While federal legalization isn’t inevitable, banking legislation will come at some point in the next few years, Viridian Capital Advisors analyst Jon Decourcey said. When it does, institutional investors will buy in, driving up the prices of US cannabis stocks — meaning the time to get in is now, when the prices are low.
“At the end of the day, all these companies have huge growth opportunities and huge market expansion opportunities in the coming year,” Decourcey said.
Here are their top five picks to bet on next year:
Recommended by: Pablo Zuanic, Cantor Fitzgerald
Current Price: $24.53
Target Price: $72
Florida-based Trulieve operates medical and recreational dispensaries in 11 states. In October, the company closed a merger with Harvest Health & Recreation, making the combined company one of the largest US cannabis firms by revenue.
Cantor Fitzgerald analyst Pablo Zuanic called the company one of his top picks in the sector in a December 5 note, because of the company’s stores — and leading market share — in profitable state markets like Florida, Pennsylvania, and Arizona.
Green Thumb Industries
Recommended by: Vivien Azer, Cowen
Current Price: $19.52
Target Price: $45
Chicago-based Green Thumb Industries operates 66 cannabis shops in 14 states, as well as popular brands like Dogwalkers, a line of pre-rolled joints.
Cowen analyst Vivien Azer called the company her top pick in the sector because of the company’s deliberate acquisition strategy, stores in lucrative states, and what Azer says are the best margins in the industry.
Overall, Azer said she prefers MSOs like GTI and its competitors over Canadian cannabis companies because of their access to the US market and branding opportunities.
Recommended by: Owen Bennett, Jefferies
Current Price: $6.90 (C$8.97)
Target Price: $28.04 (C$36.00)
Cresco Labs is a US cannabis company headquartered in Chicago with 2,900 employees. It operates in 10 states: Illinois, Pennsylvania, California, Ohio, New York, Maryland, Michigan, Massachusetts, Arizona, and Florida.
Jefferies analyst Owen Bennett said in a July 7 note initiating coverage of US cannabis companies that he preferred companies that had exposure to key states, strong branding and wholesale abilities, and cultivation in places best suited for interstate commerce, when companies can transport marijuana products over state lines. Cresco Labs, he said, “ticks many of these boxes and its relative valuation looks most compelling, in our view.”
In a November 23 note, Bennett added that he expected more growth initiatives and better financials in the next three months and said that Cresco should now start to get credit for its thoughtful and strategic long-term strategy.
Recommended by: Jon Decourcey, Viridian Capital Advisors
Current Price: $12.80
Target Price: $42.00
Ayr Wellness is a US cannabis company that operates in eight markets: Nevada, Arizona, Ohio, Pennsylvania, Florida, New Jersey, Illinois, and Massachusetts. It recently announced a deal to buy two dispensaries in Chicago.
Viridian Capital Advisors analyst Jon Decourcey said that Ayr Wellness is his top pick among US cannabis companies.
“I think the best companies to look for as we get into next year are the undervalued MSOs that quietly have been building out really attractive positions and building out formidable businesses while not getting the credit for it in terms of valuation,” Decourcey told Insider. He believes the two best-positioned names that fit that criteria are Ayr Wellness and Jushi Holdings.
Ayr, Decourcey added, is his top pick between the two, because over this past year it’s put growth initiatives in place that are going to begin to pay off in 2022.
“I think ultimately a company like Ayr is going to be one of the companies that wins in the space,” he said.
Recommended by: Andrew Carter, Stifel
Current Price: $5.80
Target Price: $17.00
Weedmaps is a cannabis-tech company that lists cannabis shops on its site for consumers to browse dispensaries and marijuana products. It operates in 20 states across the US and went public on the Nasdaq in June through a combination with a special purpose acquisition company ( SPAC). It currently has a market cap of around $385 million.
Stifel analyst Andrew Carter told Insider that while Stifel doesn’t label any of the stocks it covers as “top picks,” he would highlight Weedmaps as a company that has had impressive revenue growth over the past few months, but hasn’t been rewarded by investors.
The company also has also shown itself to be capital efficient, Carter said, adding that Weedmaps has the leverage to “invest heavily in product development, advertising as well as M&A to bolster their platform.”