On Tuesday morning, Vivien Azer, senior research analyst at Cowen, released a set of bullish predictions for a slew of marijuana stocks for 2019. In a note to investors she wrote that the long-term global cannabis market could be worth up to $500 billion over the next decade, stressing on the performance of three key companies. Tilray, Canopy Growth, and KushCo Holdings each received a nod from Azer this week for their growth potential in 2019.
“We expect continued growth in newly established U.S. states, and more robust growth in Canada as more supply comes online and new form factors hit the market,” she said on Tuesday in an interview with CNBC.
New products and the possibility of new markets in the United States are all contributing to Azer’s prediction, which is $5 billion more than previously estimated. And Cowen’s top three picks are predicted to benefit the most from this growth.
Here is a closer look at what the new year looks like for these pot stocks and what risks remain for investors.
Cannabis companies will likely see strong growth rates the next five years, Cowen managing director says from CNBC.
KushCo seeks organic growth through consumer relationships
Out of the three companies highlighted in Tuesday’s announcement, KushCo Holdings (OTCQB:KSHB) is the only one to deliver triple-digit revenue four years in a row. CEO Nick Kovacevich attributed those numbers to customer relationships and what he calls their “organic growth story.”
[EXCLUSIVE: With new Congressional Cannabis Caucus leaders, a more nuanced look at marijuana reform]
The company also posted $25.3 million in revenue this first quarter for 2019, a new company record that represents a 186 percent increase over last year’s revenue. And while they attributed some of these gains to the significant growth seen across all markets after legalization in Canada, still more comes from the relationships the company developed with their consumers and their business partners.
“We see the customer base getting more sticky with us...we see new clients coming onboard onto the platform, existing clients growing with us, spending more dollars with us. And we attribute all this growth from Q4 to Q1 to 100 [percent] organic. No acquisitions were made in Q1 that would add additional growth to this,” Kovacevich said in the company’s conference call on Tuesday. “The relationships are key, can't stress that enough.”
Still, it should be noted that the KushCo.’s cash reserves dipped from $13.5 million to $3 million this past quarter, though the funds were put to good use, so most Wall Street analysts aren’t too concerned.
Their supply agreements with new clients and new custom packaging projects, through their subsidiary Koleto Packaging Solutions, include nearly a dozen patents so far for cannabis packing and storage.
Tilray investors prepare for the IPO to expire
Tilray (NASDAQ:TLRY) is poised for some significant growth through their medical partnerships and the potential of new American markets, but their significance is shrouded in doubt as investors wait for the company’s IPO to expire in less than a week. If shareholders decide to sell, investors could see the stock plummet, a volatile move that could make or break a portfolio.
[California's unlicensed medical cannabis collectives now illegal as deadline passes]
In fact, already the volatility has already started. Right after Azer’s predictions on Tuesday, the stock jumped more than thirteen percent. But on Wednesday it fell by four percent.
The signature rise and fall of Tilray’s stock is due in no small part to its low stock float of around ten million shares. When compared to KushCo’s float of forty million shares, or Canopy’s float of over 200 million shares, it is no surprise that Tilray is a little more sensitive to financial predictions like these. The optimistic predictions of Tilray’s ability to seize their share of the market in 2019 could sway shareholder’s minds on January 15, but investors should brace themselves for a rocky rest of the month.
Canopy Growth Corp. holds almost one-fifth of Canada’s cannabis market
According to Azer’s estimates, Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) holds about eighteen percent of Canada’s medical and recreational markets. Despite posting their biggest losses in three years, Canopy remains the market leader in Canada.
[EXCLUSIVE: Univ. of Oregon Prof. Benjamin Hansen talks interstate commerce as Oregon’s cannabis problems come close to crossing the line]
Their market potential to “outperform” in this calendar year is high, Azer stated, because the real impact of Canada’s legal recreational market has yet to be felt. And with their supply agreements and latest research investments, Canopy will most likely see a more positive upturn this fiscal year over last year’s numbers.
The stock is already up 25 percent in 2019, having surged thirteen percent on Wednesday after another Wall Street backer rallied for their cause. Michael Lavery with the Piper Jaffray brokerage firm predicts that the sheer size of Canopy is enough to leverage their resources and fuel the company for the long-term. This will be helpful as investors wait on the slow burn that is American legalization.
It may seem more likely since the passing of the farm bill, but legal weed in the United States is not yet a reality. Relying on swift legal changes in the United States is a risk, but if investors have the time to wait, Canopy Growth is could be a good bet.