This week got off to a rocky start for the stock markets as indexes plunged yesterday. To make matters worse for cannabis stocks, Cowen downgraded Aurora Cannabis (ACB), Tilray (TLRY) and Sundial Growers (SNDL). As a result, shares of ACB closed down over 5%…
Vivien Azer at Cowen said the headwinds that have wreaked havoc on the cannabis sector are not going to subside any time soon. They include a shortage of retail stores, pricing pressures created by a still-thriving black market and oversupply issues that aren’t easing as expected. Azer said that cannabis 2.0, which is the next phase of legalization including edibles and other derivatives, is unlikely to be the boost that the market was hoping for.
Azer lowered her 2020 Canadian total addressable market (TAM) forecast by 32% to C$3.5 billion ($2.6 billion) in legal sales, including medical cannabis and taxes. She had already lowered her TAM forecast by 27% since January of 2017. Previously, Azer was one of the remaining bullish analysts covering ACB.
Azer wrote in a note to her clients today that, “While industry challenges around doors and high-quality flower supply are well understood, we now believe that the slower than expected rollout of cannabis 2.0 products will also prove as a headwind to revenues.”
In Cowen’s research, they found a severe shortage of edibles and a significant increase in value-based brands via their in-person channel, after checking about 20 stores. This suggests legal cannabis is still having a hard time competing with the black market’s cheaper prices.
Cowen downgraded ACB to market perform, down from outperform.
However, there is still one Wall Street analyst who remains bullish on ACB. Pablo Zuanic of Cantor Fitzgerald reiterated his overweight rating on the stock. He
said he is expecting a rerating of Candian licensed producers in the next year. Zuanic said recent moves taken by the company to shore up its balance sheet and protect margins were positives and the stock’s underperformance versus peers is overdone.
Zuanic highlights that recreational sales in Canada are…
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