MARIJUANA
Wall Street’s First Marijuana Stock Bull Gives Up and Slashes Tilray’s Price Target
By Bill Alpert
Sept. 3, 2019 11:35 am ET
Cowen & Co. analyst Vivien Azer was Wall Street’s first cannabis bull—and she was very bullish. She stuck to her $150 price target for Canadian producer Tilray (ticker: TLRY) long after other analysts conceded that Canada’s legal pot market had stumbled out of the starting gate. That $150 target was nearly triple the level of most peers.
Azer waved the white flag on Tuesday and cut Tilray’s (ticker: TLRY) target to $60. She also trimmed her target on Cronos Group (CRON) to C$17 (US$13). The rollout of recreational pot sales since Canada’s October 2018 legalization has been “muted,” she acknowledges in a set of reports, hampered by too few stores, product shortages and the prohibition of popular products like vapes and edibles. Retail prices for Canadian legal weed are 80% higher than the illicit stuff.
Azer started beating the drum for legal weed’s sales prospects in 2016, after visiting Colorado and seeing demand for cannabis that had become legal under that state’s law (while remaining illicit under U.S. federal law).
See our March interview with Azer: Here Are Wall Street’s First Pot Analyst’s Favorite Stocks
“[I]t is no surprise that cannabis trading multiples have retrenched this year,” she wrote, “and are down 43% on a market-cap weighted basis since April 1.”
With revenue growth weaker than her original forecasts, Azer says the stocks of Tilray and Cronos are commanding lower multiples. She had already cut her target for Canopy Growth (CGC) to C$48 from $82, after the company reported steep losses in its June 2019 quarter.
In her Tuesday notes, Azer maintains an upbeat tone—claiming that the hindrances on Canada’s pot sales will reverse and unleash sales. As stores open and the country allows novel products like vapes in 2020, cannabis industry sales will catch up with her forecast for countrywide sales of C$12 billion by 2025.
The collapse in Canadian pot stocks like Tilray, Canopy and Aurora Cannabis (ACB) makes them compelling values, she says, so she is maintaining her Outperform ratings on all three.
Tilray stock was up 2% in Tuesday morning trading, to US$26. A September 2018 blowout sent the stock to $300, in a brief Bitcoin-like mania. As recently as February 2019, it went for $100 a share. Cronos stock was off 1% in Tuesday trading, at US$10.90.
Azer’s partiality to Tilray became glaring as other analysts issued Hold ratings after the highly-valued company ran up large losses on weak pot sales. But Azer’s early advocacy of cannabis produced a great investment banking opportunity for her midsize brokerage firm. Cowen helped take Tilray public and even picked up a piece of the British Columbia-based pot producer. Cowen’s stake in Tilray gained $30 million in value during the stock’s September 2018 spike.
While admiring the greenfield sales opportunity for legal weed, Barron’s has been cautious about the Canada’s pot stocks since a March 2018 cover story.
Write to Bill Alpert at william.alpert@barrons.com
