Over the past year we have seen more multi-state operators in the cannabis industry jockeying for position as additional states allow medical marijuana use and move toward the acceptance of recreational-use marijuana, either by way of a pending start date for sales or a pending vote with expectations for acceptance.
Three companies that have been actively pursuing growth through expansion and acquisition in the cannabis market are Ayr Wellness (AYRW.F -11.03%), Columbia Care (CCHWF -8.14%), and Cresco Labs (CRLBF -4.23%). The activity on the part of these companies has helped push revenue and growth projections higher, and has led to more analysts raising price targets as well as initiating coverage with positive ratings.
Image source: Getty Images.
The latest of those initiating coverage is Jefferies analyst Owen Bennett, who expects the cannabis market to grow at a rapid compound annual rate of 14% through 2030. Bennett initiated coverage of seven cannabis companies with a buy rating on July 7, setting price targets that range from a 31% premium to a 154% premium based on today's stock prices. The three companies highlighted here have all been given price targets representing premiums of more than 100% above today's respective per share prices.
The players
Ayr Wellness was given a price target of $64, a 129% premium over the current share price of $28. Ayr has done its part to keep investors positive as represented by the stock price on a three-week climb while hanging on to a $28 average dating back to early April. In Ayr's 2020 full-year results, it highlighted a 25% growth in revenue and provided an exciting positive outlook for 2022, targeting a full-year revenue of $725 million, an anticipated increase of 367% over 2020. Ayr sees 2021 as a transitional year, providing no outlook, but it is in the process of adding retail locations in two more states (Ohio and New Jersey) by early 2022, bringing its total footprint to seven states in the U.S.
Cresco Labs has seen its stock price slowly trickle lower, to just above $11, after hitting a 52-week high of $17 back in mid-February. It's still not turning a profit, which can scare some investors away, but on the heels of a $476 million full-year 2020 revenue, the company experienced a growth of 271%. Cresco Labs operates in seven states across the U.S., including its largest number of retail locations in the highly competitive Illinois and Florida markets. A price target of $28.75 represents a very enticing 160% premium of its current $11 per share price.
Columbia Care has the highest price target premium of the three at 206%, based on Bennett's projections. But it also has the largest coverage of retail locations, spreading across 11 states from coast to coast in the U.S. For 2021 full-year revenue, the company has an outlook to hit upwards of $530 million, which would be an increase of 167% over 2020 full-year revenue. Columbia Care has been on an acquisition spree during the first half of 2021, making purchases in Colorado, Ohio, and Virginia, resulting in growing operations while weeding out competitors like Medicine Man and Green Leaf Medical.
The risk
Analysts' price targets can have an impact on share prices, but long-term gains for investors will most likely come from the actions of the company more than those of a single analyst covering the industry. For example, on May 7 Bennett upgraded Tilray (TLRY -5.52%) -- a large multi-state cannabis operator that was his most successful call from May 2020 to May 2021 (a 264% gain) -- to a buy rating from underperform, with a stock price target of $23. Upon doing so, the stock price took off from $14 to a quick 14% gain within two days on its way to a climb to $22 within a month after the upgrade. The price target was nearly hit within just one month, but after that short-lived climb it has since returned to its initial spike at the $16 mark, lacking enough positive news to keep the price higher.
The play
For investors looking long term, Ayr, Cresco Labs, and Columbia Care all offer great opportunities. And if you can get a short spike right off the bat based on a buy rating it may not be a bad idea to jump in now with the possibility that more analysts could initiate coverage or provide upgrades soon as we lean into second-quarter earnings releases over the next few weeks.
