While the stellar performance of cannabis stocks since their nadir in 2020 is due to multiple contributing factors, including the expected emergence from COVID-19 lockdowns, optimism surrounding the large-scale legalization at the state level in the U.S. has certainly been a major contributing factor. With an increasing number of states legalizing the use of cannabis for medical and recreational purposes, cannabis sales are expected to increase this year and beyond.
The burgeoning cannabis market in Canada has been gaining momentum on the back of increasing cannabis legalization in the United States. This could open up major markets for Canadian pot companies and allow them significantly increase their market shares.
The cannabis market is estimated to grow at a 28% CAGR over the next five years to reach $90.4 billion. With governors of many states pushing for federal decriminalization of marijuana, Wall Street analysts believe financially-strong Canadian cannabis stocks Canopy Growth Corporation (CGC), Tilray, Inc. (TLRY), and Village Farms International, Inc. (VFF) could gain significantly in the near term.
Click here to check out our new Cannabis Industry Report for 2021
Canopy Growth Corporation (CGC)
Formerly known as Tweed Marijuana Inc., CGC is a world-leading diversified cannabis and cannabinoid-based consumer product company. The company operates through Cannabis, Hemp and Other Consumer Products, and Canopy Rivers segments. Its products include high-quality dried flower, oil, softgel capsule, infused beverage, edible, and topical formats, as well as vaporizer devices by Canopy Growth and industry-leader Storz & Bickel.
In April, CGC entered a distribution agreement with Southern Glazer’s Wine & Spirits, the world’s pre-eminent distributor of beverage alcohol, regarding its U.S. portfolio of CBD-infused beverages. Southern Glazer’s established network should help CGC to sell its CBD beverage portfolio to eminent retailers and consumers of the U.S. market.
CGC’s net revenue grew by 23% year-over-year to CAD152.53 million ($126.5 million) in the third quarter ended December 31, 2020. The company reported a CAD$24.59 million ($20.39 million) gross margin. Its selling, general and administrative expenses came in at CAD144.08 million ($119.45 million), representing a 14.7% year-over-year decrease over this period.
Analysts expect CGC’s revenue to increase 46.3% to $467.05 million in the fiscal period ending March 31, 2021. The company’s EPS is expected to increase 23.6% year-over-year. The stock has gained 16.8% over the past year.
Closing yesterday’s trading session at $22.68, the $32.84 average analyst price target represents a potential upside of 44.8%.
Tilray, Inc. (TLRY)
Incorporated in 2018 and based in Canada, TLRY is involved in research, cultivation, processing and distribution of medical cannabis. It is the first GMP-certified medical cannabis producer to supply cannabis flower and extract products to patients, physicians, pharmacies, hospitals, governments and researchers on five continents.
In March, TLRY received approvals from New Zealand's Ministry of Health and the Medicinal Cannabis Agency to launch Tilray medical cannabis products in the country. This should help TLRY to expand its product offering further and generate more revenue.
In its fiscal fourth quarter, ended December 31, 2020, TLRY’s revenue increased 20.5% year-over-year to $56.56 million. The company’s gross profit increased 129.2% year-over-year to $16.64 million. Its general and administrative expenses have decreased 47.2% year-over-year to $22.6 million.
Analysts expected TLRY’s EPS to increase 89.2% in the current quarter, ending June 30, 2021. Its revenue is expected to increase 79.2% next year. The stock has increased 123% over the past nine months.
Of six analysts that rated the stock, four have rated it a Strong Buy. A $20.50 consensus price target represents a 36.4% increase from its last closing price of $15.03.
Village Farms International, Inc. (VFF)
Formerly known as Village Farms Canada Inc., VFF is one of the largest and longest-operating greenhouse growers in North America. It operates through three segments: Produce Business, Energy Business, and Cannabis and Hemp Business. The company also regulates a 7.0 megawatt power plant that produces and supplies cannabis products.
In February, VFF exercised a portion of its option to increase its equity investment in Altum International, one of Asia-Pacific's leading cannabinoid platforms, from 6.6% to 10%. This investment should increase VFF’s business opportunities in the Asia-pacific region.
VFF’s net sales increased 63.2% year-over-year in the fiscal first quarter ended March 31, 2021. Its total gross sales increased to $24.3 million, representing a 54.8% increase from its year-ago value. The company’s adjusted EBITDA came in at $404,000.
Analysts expect the company’s EPS to increase 356.4% to $0.31 in the fiscal period ending December 31, 2022, while the company’s revenue is expected to increase 42.6% to $242.86 million. VFF’s stock has gained 69.6% over the past year.
Closing yesterday’s trading session at $8.82, its $18.08 average price target represents a potential 105% upside.
Click here to check out our new Cannabis Industry Report for 2021
CGC shares were trading at $24.02 per share on Tuesday morning, up $1.34 (+5.91%). Year-to-date, CGC has declined -2.52%, versus a 12.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market.
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