Wells Fargo Starts Coverage of Four Cannabis Stocks As Legalization Battle Gains
IM Cannabis
Wall Street is paying closer attention to cannabis stocks as federal lawmakers propose legalization bills and the sector struggles to recover from a months-long market pullback.
Wells Fargo analyst Chris Carey recently initiated coverage of four cannabis stocks, weeks after the Republicans introduced their first federal bill to legalize marijuana.
The bill accompanies competing legislation from Democrats including Senate Majority Leader Chuck Schumer, Senator Cory Booker (D-New Jersey) and others.
Eighteen states and Washington, D.C., have legalized recreational adult use of marijuana and a voter-approved measure in a 19th state, South Dakota, is undergoing a court challenge, the Associated Press reported recently.
It noted that more than two-thirds of states allow medical marijuana. But it's still illegal under federal law to possess, use or sell cannabis, which is why many banks have balked at getting involved with cannabis companies.
Among the four cannabis names he started covering at Wells Fargo, Carey is most bullish on Scotts Miracle-Gro Co. SMG, a company best known for its lawn and garden products but that has been moving more into cannabis.
He has an overweight rating on Scotts Miracle-Gro and a $180 price target, according to a MarketWatch report.
The stock was up 9% in late Tuesday, trading at around $150. The shares are down about 25% so far this year. The stock reached a record high of $254.34 in early April and hit a 52-week low of $133.36 on Monday.
Carey called the stock a “flashing green” buying opportunity, according to the MarketWatch report.
“We see opportunity: a stock well off its April highs, a discount to peers, and fundamental opportunity – leader in lawn/garden and hydroponics – still ahead,” he wrote in a research note.
Carey said volatility in the sector remains the “elephant in the room,” but says the cannabis market is working through oversupply issues. He also said SMG is well established in the overall garden sector with a big presence at many big-box retailers.
Carey also initiated coverage of GrowGeneration GRWG with an equalweight rating and price targets of $18, labeling it “the top hydroponic retailer" in North America.
GrowGeneration shares were trading up 2% to $15.68 late Tuesday. The stock is down more than 60% so far this year. The stock hit a record $67.75 in February and fell to a 52-week low of $14.16 on Monday.
He also has an equalweight on Hydrofarm Holdings Group Inc. HYFM, which makes and sells hydroponic equipment and supplies, with a price target of $33. Hydrofarm Holdings shares are down more than 40% so far this year. The stock went public a year ago.
Hydrofarm shares reached a record $95.48 in February and hit a low of $27.20 on Friday.
Carey also initiated coverage of Canadian-based Canopy Growth Corp. CGC with an underweight rating and an $8 price target. The stock was up 6% to $10.77 in late Tuesday trading. In the past year, Canopy hares have traded between a high of $56.50 in February and a low of $9.54 on Monday.
The analyst said the share price “still looks overvalued,” according to the MarketWatch report, despite falling by about 55% so far this year.
In : Technical Analysis
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