One of the most interesting trends that we have been following in the cannabis sector is related to the activity at the broker-dealer level.
For the last few years, the broker dealers that have been focused on the cannabis industry have had it easy. On average, the sector was recording strong moves to the upside and companies were raising capital left and right. During this time, the sector saw a lot of consolidation (especially when it comes to Canadian Licensed Producers) and companies were forecasting exponential growth on a year-over-year basis.
A lot has changed as it relates to the cannabis sector and 2019 has not been a good year for the industry. During the last few months, we have seen a major shift as it relates to the price targets and the ratings that are being reissued by the broker-dealers that have been covering the sector.
Today, we have highlighted 5 high-profile cannabis companies that have been impacted the changing views of these broker-dealers. We have provided an update on these opportunities and have listed the price target changes that we find to be significant.
GW Pharmaceuticals (GWPH)
From 2014 to 2017, GW was considered to be the bellwether of the cannabis industry and we have been closely following the Nasdaq-traded biotech cannabis firm. So far this year, GW has been reporting ramping revenues and this is a trend that is expected to continue. In early, August, the company released second quarter financial results that showed impressed growth and several broker-dealers responded by raising their respective price target on GW.
Following the strong quarterly earnings report, GW came under pressure and traded lower with the rest of the cannabis sector. Although the company is 100% focused on developing FDA approved pharmaceutical cannabis products, the shares have traded lower with the rest of the sector. This decline comes as the Nasdaq is flirting with all-time highs and we want to highlight some of the price targets issued on the company:
- November 5th: JP Morgan lowers Price Target from $232 to $187
- November 5th: Morgan Stanley raises Price Target from November $234 to $238
- October 30th: Wainwright initiates coverage with a Buy Rating and a $170 price target
- October 21st: Needham initiates coverage with a Buy Rating and a $200 price target
- August 7th: Morgan Stanley raises Price Target on GW to $238
- August 7th: Stiefel raises Price Target on GW to $228
- August 7th: Guggenheim raises Price Target on GW to $245
- August 6th: JP Morgan establishes a December 2020 Price Target on GW to $232
Aurora Cannabis (ACB.TO) (ACB)
2019 has been a tough year for Aurora Cannabis and this is an opportunity that we continue to closely follow. The market has been concerned about the company’s ability to execute on previously announced initiatives and believes that the company will need to raise additional capital in order to execute.
During the last year, the Canadian cannabis producer has reported several divestures in an effort to raise capital and this represents a major change in strategy. Previously, Aurora was primarily focused on acquiring cannabis companies that have leverage to emerging international markets or strategic verticals in the sector. The market has not responded favorably to the recent developments and we have highlighted some of the most recent price target changes below:
- November 5th: Cantor Fitzgerald initiates coverage with a Price Target of $3.90
- October 18th : Cowen and Company cut Price Target to $8 from $12 (CAD)
- October 14th MKM Partners lowered its price target to $3.50 from $5 (CAD)
- October 11th: PI Financial lowered its price target to $7 from $12 (CAD)
- October 10th: Jeffries lowered its price target to $7 from $14 (CAD)
- September 23rd: CIBC initiates coverage with a price target of $7 (CAD)
HEXO Corp. (HEXO.TO) (HEXO)
In late July, US Money News published an article where we highlighted HEXO as a cannabis stock to avoid. Following the article, HEXO has come under significant pressure and the shares have fallen almost 50% during this time (as of October 30th). The Canadian cannabis producer is facing major capital constraints and issued soft guidance for future quarters. Below, we have highlighted some of the most recent rating and price target changes issued by leading Canadian broker-dealers:
- November 5th: Cantor Fitzgerald initiates coverage with a Price Target of $20.50
- October 30th: Eight Capital goes from Hold to Sell; Price Target to $2 from $3
- October 30th: Canaccord Genuity goes Spec Buy to Hold; Price Target to $3.50 from $7
- October 25th: CIBC cuts Price Target to $2.50 from $3
- October 29th: PI Financial goes from Buy to Neutral; Price Target to $3 from $5
- October 25th: CIBC goes from Hold to Sell; Price Target to $3 from $4
Acreage Holdings Inc (ACRG.CN) (ACRGF)
Acreage Holdings started out as a unicorn of the US cannabis industry and its claim to fame was that John Boehner, the former Speaker of the House of Representatives, sat on the company’s Board of Directors. This type of potential influence made Acreage Holdings one of the most highly sought after initial public offerings of 2019.
Acreage started out as nothing short of an execution story. The company was making a splash in the cannabis industry and these moves caught the attention of Canopy Growth Corporation (WEED.TO) (CGC), which had received a $4 billion investment from Constellation Brands (STZ). Canopy ended up announcing a multi-billion-dollar acquisition of Acreage to provide leverage to the US market once cannabis became legal at the federal level.
What started out as a great idea quickly fell apart, especially after Bruce Linton was fired as the CEO and Chairman of Canopy Growth. During the last few months, Acreage has been a major underperformer and the shares have fallen more than 80% from its 2019 high. This is a trend that has caught our attention and we have highlighted some of the most recent price target changes from leading cannabis focused broker-dealers:
- September 13th: Cowen & Company initiates coverage with a Hold and a $9 Price Target
- August 15th: Eight Capital cuts Price Target to $23 from $34
- August 15th: Cormark Securities cuts Price Target to $16 to $31
- August 14th: Compass Point cuts Price Target to $18 from $27
Innovation Industrial Properties (IIPR)
Although 2019 has been a banner year for Innovation Industrial Properties, the shares have come considerably off its July highs and this is a trend that we have been closely following. During the last few months, the NYSE cannabis REIT has continued to be under pressure and is trading at levels not seen since February. When it comes to Innovation Industrial Properties, we expect to see a significant decrease in average rental fee and expect this to become more significant in 2020 and beyond.
When you look at the average price target issued to Innovation Industrial Properties, you will notice that the shares are trading at a substantial discount. During the last month, there has only been one downgrade and we expect to see additional downgrades in the coming months.
- October 16th: Compass Point cut its price target to $133 from $177
- July 18th: Compass Point raises its price target to $177 from $160