Cannabis investors have heard this message consistently at The Seed Investor in recent weeks. Now a New York-based analyst is saying the same thing.
Cantor Fitzgerald Analyst Pablo Zuanic, who initiated coverage of six cannabis stocks Monday, said in a report to clients that several pot companies are attractive at current levels based on the long-term opportunity and that concerns hanging over the sector are priced in and overdone.
“We are calling the bottom on Canadian cannabis stocks and think positive catalysts far outweigh negative ones,” Zuanic said in the report.
Unequivocal. “Positive catalysts far outweigh negative ones”. Exactly.
Zuanic’s focus is primarily in Canada and he initiated coverage on Aphria Inc (US:APHA / CAN:APHA) and Organigram Holdings (US:OGI / CAN:OGI) with “overweight” ratings. Other Canadian pot giants like Aurora Cannabis (US:ACB / CAN:ACB), Canopy Growth (US:CGC / CAN:WEED) and Tilray Inc (US:TLRY) were rated “neutral”. HEXO Corp (US:HEXO / CAN:HEXO) was given an “underweight” rating due to weak revenue growth and new regulatory issues with the Quebec government.
Zuanic attributed his bullishness to strong growth seen in Canadian recreational cannabis sales, an increase in retail store openings, the pending roll-out of Cannabis 2.0 products such as vapes and edibles, further sector consolidation, and potential interest from major consumer packaged goods companies partnering with pot companies. [emphasis mine]
The Seed Investor has been stressing precisely the same positive fundamentals.
Cannabis investors may also note a sudden change in tone in the reporting on the cannabis sector. After more than a year of a relentlessly negative drumbeat from the mainstream media on the cannabis industry, these same outlets are suddenly singing a different tune.
A change in media reporting will not (by itself) cause a reversal in cannabis stock valuations. However, it will cause some short traders to reconsider their aggressive shorting of cannabis stocks.
As was noted in a previous Seed Investor article, short positions in the cannabis sector remain disproportionately large – even with valuations at a two-year low. This creates the potential for a “short squeeze” to amplify the boomerang in cannabis stock valuations.
We also recently pointed out some former JPMorgan and Deutsche Bank investment bankers were raising $2 billion for a cannabis fund – precisely because they were also seeing very attractive opportunities in the legal cannabis space.
It’s been a long, brutal trough for patient cannabis investors. However, in terms of positive fundamentals and (now) friendlier reporting on the sector, there does appear to be a light at the end of the tunnel.