Over the past year, more and more multistate operators in the cannabis industry have been jockeying for top positions as additional states legalize the medical and/or recreational use of marijuana.
Three companies that have been actively pursuing growth through expansion and acquisition in the cannabis market are Ayr Wellness (AYRW.F -1.25%), Columbia Care (CCHWF 1.81%), and Cresco Labs (CRLBF -1.10%). These companies' moves have helped to push revenue and growth projections higher, and analysts have been raising their price targets as well as initiating coverage with positive ratings.
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The latest of those to initiate coverage is Jefferies analyst Owen Bennett, who expects the cannabis market to grow at a rapid compound annual rate of 14% through 2030. Bennett initiated coverage of seven cannabis companies with a buy rating on July 7, setting price targets that range from a 31% premium to a 154% premium based on today's stock prices. The three companies highlighted here have all been given price targets representing premiums of more than 100% above today's respective per-share prices.
The players
Ayr Wellness was given a price target of $64, a 129% premium over the current share price of $28. Ayr has done its part to keep investors happy -- the stock price has been on a three-week climb lately, having averaged $28 since early April. In Ayr's 2020 full-year results, management highlighted 25% growth in revenue and provided an exciting positive outlook for 2022 , targeting a full-year revenue of $725 million, an anticipated increase of 367% over 2020. Ayr sees 2021 as a transitional year, providing no outlook, but it is in the process of adding retail locations in two more states (Ohio and New Jersey) by early 2022, which will bring its total footprint to seven states in the U.S.
Cresco Labs has seen its stock price slowly trickle lower, to just above $11, after hitting a 52-week high of $17 back in mid-February. It's still not turning a profit, which can scare some investors away, but $476 million in full-year 2020 revenue represented year-over-year growth of 271%. Cresco Labs operates in seven states across the U.S., with its largest number of retail locations in the highly competitive Illinois and Florida markets. A price target of $28.75 represents a very enticing 160% premium to its current $11 per share.
Columbia Care has the highest price target premium of the three at 206%, based on Bennett's projections. But it also has the largest coverage of retail locations, spreading across 11 U.S. states from coast to coast. For 2021 full-year revenue, the company expects to bring in upwards of $530 million, which would be an increase of 167% over 2020 full-year revenue. Columbia Care has been on an acquisition spree during the first half of 2021, making purchases in Colorado, Ohio, and Virginia, growing its operations while absorbing competitors including Medicine Man and Green Leaf Medical.
The risk
Analysts' price targets can have an impact on share prices, but long-term gains for investors will most likely come from the actions of the company itself, rather than a single analyst's opinion. For example, on May 7 Bennett upgraded Tilray (TLRY 2.91%) -- a large multi-state cannabis operator that was his most successful call from May 2020 to May 2021 (a 264% gain) -- to a buy rating from underperform, with a price target of $23. The stock took off from there, notching a quick 14% gain within two days on its way to a climb from $14 to $22 within a month after the upgrade. After that short-lived surge, it has since returned to about $16, lacking enough positive news to keep the price higher.
The play
For investors looking long-term, Ayr, Cresco Labs, and Columbia Care all offer great opportunities. And if you see a short spike in stock price right off the bat based on a buy rating, it may not be a bad idea to jump in -- with the possibility that more analysts could initiate coverage or provide upgrades as soon as we lean into second-quarter earnings releases over the next few weeks.
A short spike could represent a forecast for the long term. If a stock is attracting investor interest and backed by analyst ratings, that can be a good sign of positive gains to come. Sometimes those spikes are met with some profit-taking, causing the price to drop back, but for long-term investors looking to get in now, such a spike could act as a catapult.
