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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| April 16, 2019
Cannabis and marijuana stocks are an exciting industry right now. According to Cowen & Co.’s Vivien Azer – a pioneer in cannabis-stock analysis – U.S. marijuana sales are set to reach about $80 billion by 2030. Currently, U.S. legal and illicit sales combined total at least $50 billion. That’s on top of an estimated $C12 billion in Canadian revenue by 2025 for both recreational and medical use.
The problem? It’s still early days for the sector, which means significant risk is involved. It’s common to see these primarily small- and mid-cap stocks move 10% or more in response to headlines or quarterly earnings reports. Companies are rushing to establish an early leadership position, and not all of them will end up winners. Plus, the federal legalization of cannabis in the U.S. remains a big question mark.
So how do you pinpoint the most compelling investing opportunities in this lucrative industry? One option is to focus on the cannabis stocks that the Street is most bullish on right now.
We used TipRanks market data to pinpoint five cannabis and marijuana stocks to buy based on overwhelmingly positive consensus ratings among Wall Street analysts. Let’s take a closer look at each.
Data is as of April 16. TipRanks consensus ratings and price targets based on analyst actions within the past three months.
Market value: $461.5 million
TipRanks consensus rating: Strong Buy
TipRanks consensus price target: $27.00 (277% upside potential)
Cannabis biotech Corbus Pharmaceuticals (CRBP, $7.16) is tasked with developing novel therapeutics to treat inflammatory and fibrotic diseases. And it has the attention of top-ranked Oppenheimer analyst Leland Gershell, who in March initiated coverage of CRBP with an Outperform rating and a $28 price target, implying 291% upside.
Gershell says the next 12 to 24 months could be “transformational” for Corbus and its lead oral cannabinoid receptor agonist lenabasum. Ongoing late-stage trials in three rare, poorly met disorders of chronic inflammation/fibrosis should all complete their enrollment and deliver top-line data during this time.
“While we highlight systemic sclerosis as the key driver of our enthusiasm, lenabasum has demonstrated positive prior clinical data in each setting (systemic sclerosis, dermatomyositis, cystic fibrosis), any one of which offers ~$500M-$1B+ sales potential,” the analyst writes. Japanese rights recently were acquired by Kaken Pharmaceutical, and Gershell believes deals for other Asian geographies could materialize through 2019.
Gershell isn’t the only analyst signaling their support for this stock. Jefferies’ Maury Raycroft initiated Corbus in April with a “Buy” rating and $18 price target (151% upside). The April 5 announcement sent shares up 10% in a day.
With these latest recommendations, CRBP stock now boasts five back-to-back buy ratings in the past three months. Discover more from TipRanks in its CRBP Research Report.
Market value: $5.0 billion
TipRanks consensus price target: $179.00 (9% upside potential)
British health care stock GW Pharmaceuticals (GWPH, $164.39) is known for its multiple sclerosis treatment product nabiximols (Sativex), which has the first cannabis-derived medicine to be licensed in the U.K., and the first to gain approval by the U.S. FDA.
Now, Wall Street’s attention has turned to GWPH’s Epidiolex for the treatment of seizures associated with Lennox-Gastaut syndrome (LGS) or Dravet syndrome, two rare and particularly difficult to treat forms of epilepsy. This is a liquid formulation of highly purified plant-derived cannabidiol, or CBD, that was launched in November 2018 following FDA approval in June.
Notably, early demand was so great that GW’s specialty pharmacy distribution network and patient support services were overwhelmed. GW has now improved its patient support services and broadened its network from five specialty pharmacies to more than 140 distribution points.
Five-star Cowen & Co. analyst Phil Nadeau recently hosted a dinner with GWPH senior management. “With strong clinical data, solid reimbursement access, and pent up demand awaiting it, Epidiolex’s launch in Dravet and Lennox Gastaut (refractory seizure disorders) is off to a fast start,” Nadeau writes.
According to the analyst, the drug’s reception has only fortified GWPH’s expectations that Epidiolex will be a standard therapy that “will have utility in a range of indications.” With management working diligently to make sure Epidiolex fulfills its potential, the analyst expects the drug to achieve $1 billion or more in peak annual sales. He also thinks GWPH stock is undervalued compared to its potential and reiterated his “Buy” rating on March 12 with a $175 price target (6% upside potential).
See what other analysts think of this marijuana stock in TipRanks’ GWPH Research Report.
Market value: $175.9 million
TipRanks consensus price target: $20.00 (140% upside potential)
Zynerba Pharmaceuticals (ZYNE, $8.35) is currently running clinical trials for a groundbreaking cannabinoid (CBD) gel, Zygel.
This is the first and only pharmaceutically produced CBD formulated as a patent-protected permeation-enhanced gel. CBD is delivered through the skin and into the circulatory system. Zynerba says gel delivery offers multiple advantages compared to simply swallowing pills, including minimizing the risk of negative psychoactive effects.
H.C. Wainright analyst Oren Livnat says Zynerba is “displaying spending discipline as it chugs along toward what should be a transformational” second half of this year. He is referring to key pipeline data readouts for Zygel from the CONNECT-FX pivotal Phase 3 study for the treatment of Fragile X Syndrome (FXS). This is a rare genetic disease that causes a range of developmental problems including learning disabilities and cognitive impairment.
Livnat recently reiterated his “Buy” rating on ZYNE stock with a $23 price target. From current levels that indicates jaw-dropping upside potential of 175%. “We reiterate our Buy rating and see the current $105M market cap ($27M EV) leaving remarkable upside potential on positive data; as our $23 price target still reflects only a 35% probability of success in FXS,” the analyst wrote on March 18. He added, “We remain optimistic for positive data, though concede that investors will view this as extremely risky given only open-label data to date, and other companies’ failures in the indication.”
For more information on this under-the-radar pharma stock, get a free ZYNE Research Report from TipRanks.
Market value: $8.6 billion
TipRanks consensus rating: Moderate Buy*
TipRanks consensus price target: N/A
Canadian Aurora Cannabis (ACB, $8.51) is a low-cost producer of medical cannabis, and the fourth largest cannabis stock by revenue. And while the company has been cooling off in April, that follows a massive jolt in March after it announced prominent activist consumer goods investor Nelson Peltz as a strategic advisor.
Jefferies analyst Owen Bennett writes, “This appointment should further support Aurora’s strong recreational outlook, and with its existing strong medical operations, adds more weight to our view that Aurora is set up well to be a long-term global leader.”
Bennett highlights Peltz’s historical focus on profitability and efficient asset allocation, which will prove valuable for the next stage of Aurora’s growth. In return, Peltz will receive options to buy 19.9 million shares that vest subject to a number of events, including “the share price being at least at C$31.02 and C$41.36 for a specified number of trading day.” (Today’s price is around the C$12 level, which suggests Peltz has confidence in the outlook.)
Another positive signal: German press reported on April 4 that Aurora received five of 13 lots in a German domestic cultivation tender process. “Whilst cultivation amounts will be small initially, if true this decision adds to the credibility of Aurora’s medical operations and positions it well for entrance to future international markets,” writes Bennett, who has a “Buy” rating on ACB stock with a C$12 (roughly $9 in U.S. dollars) price target.
You can check out more analysis of Aurora Cannabis in TipRanks’ ACB Research Report.
* Aurora recently was rated “Strong Buy” until one of its buy calls fell outside the three-month window. It still is a “Strong Buy” among TipRanks’ top-rated analysts, and is a “Strong Buy” on the Toronto Stock Exchange for both all analysts and top-performing analysts alike.
Market value: $36.3 billion
TipRanks consensus price target: $230.30 (21% upside potential)
If you are looking for cannabis exposure but without the high risk of pure-play marijuana stocks, look at blue chip Constellation Brands (STZ, $190.92).
Constellation is the owner and marketer of popular beers such as Corona and Modelo, wines such as Robert Mondavi and Meiomi, and spirits such as Svedka vodka and High West whiskey. It also boasts a 37% stake in Canadian cannabis giant Canopy Growth (CGC) via a $191 million investment in 2017, then a massive $4 billion additional buy-in last year. Although the size of this investment has made some investors wary, the deal does have supporters.
“Constellation remains an operating company that we know and love with premium growth, high returns and fantastic cash generation, as well as a private equity investor in Canopy Growth,” writes Pivotal Research analyst Timothy Ramey, who has a “Buy” rating and $265 price target (39% upside potential). “We are convinced that CGC is the best way to play the rapidly growing cannabis market and investors should begin to fully reflect that value and CGC’s prospects, rather than penalizing STZ for the cash carrying costs of the investment.”
Jefferies’ Kevin Grundy offers a similarly upbeat analysis. Following the company’s strong Q4 earnings beat, Grundy called STZ a “top pick” and ramped up his price target from $255 to a Street-high $267. Grundy added that even though CGC is “still a major focus/non-cash drag on EPS,” it offers “unique exposure to the cannabis space.” Find out what other analysts think of Constellation in TipRanks’ STZ Research Report.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 5,000 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.