BMO Just Sent Shockwaves Through The Cannabis Sector With This Grim Analyst Note

BMO sent shockwaves through the cannabis sector after an analyst issued a bleak two-year outlook for it.

In the note, the analyst said the firm expects current industry challenges to continue to impact the sector for the foreseeable future. We consider the broker-dealer’s outlook to be relevant and believe our readers should be aware that the firm does not expect any meaningful rationalization of Canadian cannabis producers in the near future.

Another key development from the industry update is related to Canopy Growth Corporation (Nasdaq: CGC) (TSX: WEED), leading Canadian Licensed Producer (LP). The analyst downgraded Canopy Growth to a Sell and lowered the price target to $2.50 following the recent quarterly earnings report. The rationale for the downgrade is based on ongoing challenges that are partly related how the company’s cost cutting strategy is unlikely to have a meaningful impact on its bottom line in the near future.

In BMO’s cannabis industry update, the firm highlighted Village Farms International (Nasdaq: VFF) as its top pick in their coverage universe and reported to be cautiously optimistic on Cronos Group’s (Nasdaq: CRON) (TSX: CRON) long-term growth prospects. Although we were surprised by these selections, we understand the basis for the bank’s decision after conducting additional due diligence on these operators.

So far, 2022 has been a challenging period for the cannabis sector and we hope to see a change in investor sentiment in second half of the year. We believe the combination of high inflation, geopolitical conflict and opaque US regulations, have amplified the pressure on the sector and will monitor how these factors continue to impact the sector.

During the last year, the global cannabis industry reported impressive growth and we continue to have a long-term bullish outlook on the sector. In the near term, we expect to see several cannabis companies file for bankruptcy and believe this will benefit the sector over the long-term.

If you are interested in learning more about the global cannabis market, please send an email to support@technical420.com with the subject “Where Does The Cannabis Sector Go From Here” to be added to our distribution list.