Few industries have begun 2021 on a higher note than cannabis.
The election of Joe Biden in November and the Democratic Party's sweep of the Senate runoffs in Georgia on Jan. 5 have people questioning if we'll soon see changes to the federal scheduling of marijuana.
However, there's a wide array of Wall Street opinions on the outlook for marijuana stocks. Most pot stocks have been flying in the new year, but many are near or well above Wall Street's one-year consensus price targets. According to analysts on Wall Street, the following three cannabis stocks offer the highest upside, ranging from 35% to 92%.
Valens: Implied upside of 92%
There's only one pot stock that even comes close to having the potential to double over the next year, according to Wall Street professionals: Canadian processing company Valens (VLNCF 11.11%).
Pull up a three-year chart of Valens and you'll see that the stock is relatively unchanged. That's because Canada's many miscues have led to cannabis product oversupply throughout much of the country. With provinces like Ontario still working to open new retail locations, and Quebec not allowing cannabis vape products to be sold, the demand for higher-margin derivatives just hasn't necessitated as much processing capacity as initially anticipated.
However, it's not all bad news. Valens recently announced that it would take a one-time charge in the fourth quarter on its pricier oil products to better align its portfolio with the value-based derivative products Canadians are buying. This will lower costs moving forward and improve the company's operating margin.
Furthermore, Valens has been expanding its sales potential. It's emphasizing its white label manufacturing capabilities, and has plans to move into the health and wellness category in 2021. It's possible that Valens could get back into the profit column as soon as this year.
Columbia Care: Implied upside of 38%
Most U.S. multistate operators (MSO) are within a stone's throw of Wall Street's one-year price target, but the oft-overlooked Columbia Care (CCHWF 4.12%) offers the highest implied upside in this category. Even after the company doubled in value from early October, analysts still see an additional 38% upside.
I know what you're probably thinking, and no, Columbia Care and the rest of the MSOs don't need federal cannabis reform to succeed. The federal government's current hands-off policy of letting individual states regulate cannabis is more than enough for Columbia Care, which has dispensaries and processing facilities in 18 states.
Columbia Care had a pretty sizable medical marijuana presence in key U.S. states before they legalized adult-use marijuana. That existing presence has made it a bit easier for the company to pivot to adult-use cannabis in key markets like California, Arizona, New Jersey, and Colorado (Arizona and New Jersey voted to legalize recreational pot in November 2020).
Speaking of Colorado, Columbia Care is a big fan of inorganic growth opportunities. In September, it closed on its acquisition of The Green Solution, which is Colorado's leading integrated cannabis company. Given Columbia Care's presence in numerous potential billion-dollar markets, Wall Street's implied price target is certainly attainable.
KushCo Holdings: Implied upside of 35%
Analysts are also pretty high on ancillary small-cap cannabis company KushCo Holdings (KSHB), which continues to rebound after an absolutely abysmal 2020.
The coronavirus pandemic repeatedly clobbered KushCo, which provides everything from custom packaging for pot products to vaporizers. Most of its vaporizers are produced in China, so the company suffered a product shortfall in early 2020. Then came the state-level lockdowns that closed indoor purchasing to the public. Finally, supply chain bottlenecks in shipping ports hurt it during the holidays. These factors made for a forgettable 2020.
Thankfully, good news is stacking up for 2021 and beyond. The company has exited its hemp trading operations to focus on meeting the needs of large U.S. MSOs. In fact, one of the top five MSOs in the U.S. signed a long-term contract with KushCo during the fiscal first quarter of 2021. Although supply issues and ending its hemp trading operations caused year-over-year sales to fall in Q1 2021, expenses were also way down. KushCo lost only $0.01 per share on an adjusted basis in the recently ended quarter.
The company impressively upped its full-year sales forecast by $10 million on the high and low end to a new range of $130 million to $160 million. It also expects to generate between $5 million and $7 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). In short, KushCo looks to finally be turning the corner.