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Following up on its September initiation of coverage of the cannabis industry, Cowen and Company has extended its coverage to Canada in a report entitled “O Cannabis! – Initiating Coverage of Canadian Cannabis”. The 23-page report highlights Canada as the “first major developed market to legalize cannabis for adult use nationally,” suggesting that the market could reach $8 billion in sales by 2021. Analysts Vivien Azer and Aaron Grey discuss the potential negative implications for the Canadian alcoholic beverage industry, particularly beer.
Additionally, the investment bank issued a research report on Canopy Growth (TSX: CGC) (OTC: TWMJF), rating it “Outperform” and giving the company a price target of $13, up 31% from the close on January 9th. The 27-page report calls the company a first mover and suggests that the pending merger with Mettrum will give the combined company a market share of over 30%. Analyst Vivien Azer bases her target on a multiple of 4X FY19 sales of $545.6mm.
Currently trading at ~2x our FY3 sales, CGC’s multiple looks attractive given the robust top-line growth that CGC should realize once the underlying illicit market is legalized. Indeed, unlike other companies that aim to capitalize on emerging consumer trends, in cannabis, while CGC benefits from an emerging legal market, the informal market is well established. Similar high sales growth stocks include PLNT, LULU, and TSLA which at one point traded at multiples north of 5x FY3 sales.
Vivien Azer, Senior Analyst at Cowen and Company
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