The cannabis market has the potential to be extremely lucrative for investors. For example, shares of cannabis grower Hexo (HEXO) are now up 36% since the company went public in January. But you have to know which stocks to look out for- as not all cannabis stocks are primed for success. And one way to go about this is to find the stocks with the most bullish outlook according to the Street. Here we delve deeper into three such stocks, that all show a ‘Strong Buy’ consensus from top-performing analysts. These are the analysts who consistently outperform the market, so their advice is worth following. Let’s take a closer look now:
GW Pharmaceuticals Fires on All Cylinders
There’s no denying that this cannabis biotech is on a roll. GW Pharmaceuticals (GWPH) develops and commercializes plant based cannabinoid therapies. Its key drug Epidiolex is marketed for the treatment of seizures associated with LennoxGastaut syndrome and Dravet syndrome. And with a strong Epidiolex launch and uptake trends so far, management is already demonstrating impressive execution in a very competitive market.
Most notably, GWPH has just reported Epidiolex revenues of $33.5M, more than double some estimates, thanks to uptake among new patients and the transition from expanded access and open-label extension programs (EAP/OLE) to commercial product. Even more importantly, the company also shared positive topline results from a Phase 3 study of Epidiolex in patients with seizures associated with tuberous sclerosis complex (TSC).
Such strong earnings prompted Oppenheimer’s Esther Rajavelu to upgrade GWPH from ‘Hold’ to ‘Buy.’ Following this upgrade, GWPH has now received 10 back-to-back buy ratings from analysts covering the stock in the last three months. That’s with a $220 price target, indicating upside potential of over 23%. “GWPH is uniquely positioned as the only phytocannabinoid company with an FDA-approved, marketed therapeutic agent (Epidiolex), and a validated platform it can leverage broadly” Rajavelu told investors.
Rajavelu continues: “Our Outperform thesis is based on our view that the potential for Epidiolex use in multiple seizure types including those associated with tuberous sclerosis complex, as well as other pipeline opportunities, are not fully reflected in the stock at current levels.” Following the latest trial results, the analyst updated the the probability of approval of the sNDA (supplemental new drug application) for TSC to 87% from 41% previously, and expects the filing to be submitted in Q4.
Interestingly, UK-based GWPH also boasts a ‘perfect’ Smart Score of 10/10. This new rating system compiles 8 different data sets- from analyst ratings to the latest insider activity- to rank stocks out of ten. Here GWPH scores highly not just with the analysts but also with both bloggers and hedge funds. That’s alongside Very Positive news sentiment, and positive momentum with shares up 22% over the last year. (See GWPH’s price targets and analyst ratings on TipRanks)
Aphria Still Rides on a Wave of Positive Analyst Sentiment
GWPH isn’t the only cannabis stock out there with strikingly positive Street sentiment. Canadian cannabis giant Aphria (APHA) has also received only buy ratings from analysts in the last three months. That’s despite a horrific 2018 featuring a takeover attempt and short seller allegations of devious insider dealings. But with a board investigation complete and a new CEO at the helm (Irwin Simon) the tide is now turning. And so it’s worth taking a closer look at Aphria now while the stock is still trading at discounted levels.
“We believe Aphria is on the cusp of a major production ramp along with significant economies of scale for production and SG&A costs. Given our increased CY2020e Adj. EBITDA estimate, we are raising our 12-month target price to $24.75 per share (from $22.75)” cheers Clarus analyst Noel Atkinson. From current levels this indicates huge upside potential of 136%.
He blames limited capacity and production bottlenecks for the recent disappointing earnings results, but sees brighter days ahead. “If management can guide the pending production ramp effectively, we believe there is the potential for a very substantial re-rating of the stock price from current levels. We reiterate our Buy rating” the analyst concluded. Bear in mind, APHA shares have already exploded by 550% in the last three years.
So what kind of growth can we expect? Well, management recently provided targets of $500MM of Canadian cannabis revenue (annual run-rate) by the end of CY2019 and $1 billion by the end of CY2020. That expansion now looks closer than ever due to the Health Canada licensing for the crucial Part IV/V expansion (80,000 kg/year) at Aphria One that was received right after quarter-end on March 4- which means Aphria One’s full capacity should reach consumers as early as this summer.
Plus the new Aphria Diamond facility should come on line soon. “We continue to believe that Aphria has developed one of the most automated and highly sophisticated cultivation facilities in the world at Aphria One, and we expect Aphria Diamond (140,000 kg/year) to have similar capabilities once it is licensed” writes Atkinson. The analyst adds: “We understand Aphria Diamond is essentially completed and awaiting Health Canada inspection to begin cultivation.”
From a Smart Score perspective however Aphria receives a more muted score of six. Even though the stock scores highly with both analysts and bloggers, and has a Very Bullish news sentiment for the past week, its sentiment from investors is Positive (vs Very Positive for GWPH) with both the technicals and fundamentals in the red. (See APHA’s price targets and analyst ratings on TipRanks)
Top Analysts Love Canopy Growth
This piece would not be complete without our third stock, Canopy Growth (CGC). In just one year shares in CGC, the world’s largest cannabis stock by market cap, have doubled. Now if you look at all the analyst ratings received by CGC over the last three months, the stock shows a cautiously optimistic Moderate Buy consensus.
But if we include only those ratings published by best-performing analysts, the consensus shifts to Strong Buy. In fact, CGC has received five consecutive buy ratings from top-performing analysts in the last three months. And if we look at the Canadian ticker TSE:WEED, that’s with an average analyst price target of C$83, for upside potential of just over 30%.
What’s more CGC’s most recent rating comes from Martin Landry of GMP FirstEnergy. This is one of the Top 20 analysts ranked by TipRanks out of over 5,190 analysts thanks to his savvy stock picking skills. He reiterated his buy rating on CGC with a C$72 price target- having upgraded the stock from Hold to Buy in April following the news that CGC has acquired the rights to snap up organic cannabis company Acreage Holdings.
As far as the Street is concerned, this deal provides CGC with a straightforward “path for the U.S. cannabis market.” Landry himself writes “This transaction should boost Acreage’s ability to consolidate the U.S. market.” That means “when Canopy officially takes ownership of Acreage, it could be much larger than currently.”
The analyst has now returned from a very insightful tour of the company’s activities in British Columbia (BC), including both the company’s Aldergrove and Delta facilities.“The BC greenhouses appear to be running smoothly across all areas of production, trimming and drying,” the analyst commented- silencing rumors of dead cannabis plants that have plagued CGC since a video back in 2018 purported to show total crop failure at Aldergrove.
According to Landry, “The facilities are ramping up production with only 400k sq. ft. of greenhouse currently unlicensed, the application for which has been submitted. With a number of harvests already under the belt, the ramp up focus is on increasing yields and shortening cycle time. WEED expects it can achieve an equivalent of over four harvests per year. Canopy has trimming and drying capacity to handle the full production of the BC Tweed facilities.” He believes Canopy’s BC facilities could eventually produce 300 tonnes of cannabis annually, with a production cost of $0.50/ per gram.
With the stock showing such strong momentum, CGC also sports a 10/10 from TipRanks’ Smart Score, despite Very Negative sentiment from investors. (See CGC’s price targets and analyst ratings on TipRanks)
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
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