Seaport Global Securities LLC analyst Sonny Randhawa on Friday launched coverage of eight U.S. cannabis companies and assigned buy ratings to all of them as an undervalued group.
He predicted consumers could turn to cannabis as a lower-priced alternative to alcohol in a potential recession.
“With budgets constrained, we believe new customer penetration rates could accelerate as consumers spend more time at home and the bang-per-buck for cannabis vs alcohol keeps moving higher,” Randhawa said.
Summing up his ratings move, Randhawa said, “a commodity never smelled so sweet” because cannabis stocks are going through a bottoming process and will be higher six months from now, both on an absolute basis and relative to the S&P 500
Ascend Wellness Holdings Inc.
($7 price target), Ayr Wellness Inc.
($13 price target), Curaleaf Holdings Inc.
($9 price target) and Green Thumb Industries Inc.
($15 price target) all drew buy ratings.
Jushi Holdings Inc.
($3 price target), Terrascend Corp.
($4 price target), Trulieve Cannabis Corp.
($23 price target), and Verano Holdings Corp.
also received buy ratings.
“If there was ever a time to buy over the last 18 months, we believe it’s today,” Randhawa said.
The view by Seaport Global remains contrarian relative to the steep losses in the sector in 2022. Dim prospects for a new cannabis bill introduced this week by Sen. Chuck Schumer marked the latest in a series of disappointments for investors hoping to cash in on federal legalization.
The AdvisorShares Pure U.S. Cannabis ETF
has lost 51.9% of its value in 2022, including a drop of 2.7% on Friday. By contrast, the Nasdaq
is down 24.3% in 2022. The S&P 500
has lost 16.8%.
Still, Seaport Global’s Randhawa argues that prospects for the group over the next three to five years remain more bullish now than ever.
During the current time of high inflation and rising interest rates, value names in a sector typically outperform, he said.
Cannabis stocks fit in this value bucket after steep losses in stock prices, even as the cannabis sector grows at a projected compound annual growth rate of 17%, Randhawa said.