June 2019 might hold some surprises for cannabis stocks. With the recent market downtrend, there are many great cannabis stocks potentially selling at a discount. It’s become evident that cannabis is now consolidating and potentially setting up for the next wave of volatility. Whether that wave proves to be bullish or not is yet to be determined. For June 2019, there are a few stocks worth watching.
Here is a short list of stocks to look out for June:
Charlotte’s Web, one of the leaders in hemp CBD extract products, is a new listing with incredible potential. It’s business model focuses mostly on hemp CBD products. Non-intoxicating and highly effective at improving health among many other uses, hemp is revolutionizing many industries. Charlotte’s Web is one of those companies leading the hemp revolution with CBD pet products, CBD capsules and extracts, and a wide range of other products. Although not considered technically ‘cannabis’, hemp has become an incredibly powerful movement in American agriculture.
Hemp stocks in general are an interesting play. They offer a great alternative to purely cannabis stocks and give opportunity for investors in America to get into the cannabis market in some form. Hemp provides incredible value in the form of textiles, CBD, protein products, general nutrition (hemp seeds) and more. Charlotte’s Web is one of the companies leading the hemp revolution. So look out!
In late April, Benchmark analyst Mike Hickey initiated coverage on Charlotte’s Web’s stock, with a Buy rating and a $25 price target, which is nearly 100% upside from current trading level.
Hickey opined, «Our positive view on CWEB is based on the Company’s exposure to meaningful demand drivers that include: 1) Early leadership and brand development in the rapidly emerging domestic CBD market, which could reach $22B in 2022; 2) Recent passage of the 2018 Farm Bill where hemp is removed from the Controlled Substances Act and removed from the jurisdiction of the Drug Enforcement Agency (DEA); 3) A vertically integrated business model with a significant 2018 hemp harvest. CWEB has established manufacturing and distribution capabilities, all of which sets the stage for accelerating near term business growth; 4) Continued rapid expansion of CWEB’s product retail locations including national chains and growth from its ecommerce platform; 5) Ongoing brand development and product innovations that deliver CBD as the active ingredient. Anticipated new product offerings include consumables, pet offerings and differentiated topicals / cosmetics.»
Canopy Growth is also doing interesting things. Similar to Charlotte’s Web, it sees incredible potential in the current hemp market in the U.S.. It’s one of the first Canadian cannabis producers to enter the hemp CBD market and has large plans to expand that part of its business. Canopy is also highly invested in cannabis products such as edibles and beverages making is a very interesting company to look out for before Canada opens its doors to edibles later this year.
GMP analyst Martin Landry recently reiterated a Buy rating on Canopy stock, with a C$72 price target, suggesting the stock can rise 30% from current levels.
Landry noted, «The BC greenhouses appear to be running smoothly across all areas of production, trimming and drying. We value Canopy using a sum-of-the-parts with pro-forma share count assuming the Acreage acquisition closes. We value Acreage at 22x consensus 2021 EBITDA of US$292m for a value of $15.00 per pro-forma share. Our valuation of Canopy’s legacy operations is unchanged at $31b (or $56.00 using a pro-forma share count) and derived using a DCF calculation with the following: 1) a 7.5% discount rate, 2) a 28% share of the recreational market, (3) a 28% EBITDA margin, and (4) a 3.2% terminal growth.»
Overall, Canopy has had 7 bullish analysts in its corner over the last three months, and 4 analysts playing it safe on the sidelines. Importantly, the 12-month average price target of C$80.17 showcases 46% in upside potential for the stock.
Namaste stock is a love/hate relationship for many investors. It’s had a ‘journey’ of sorts trying to find its footing in the industry. Slowly consolidating after a bumpy ride from 3.74 in Oct 2018 to 0.88 for the last trading day of May 2019, it’s finally gaining a slight uptrend recently. Steadily trying to find its ground through all the adversity, Namaste may potentially be gearing back up to its former glory. June might see Namaste finally get its grip on the market.
Hemp stocks might have great potential in the next few months. Especially with the increasing social media hype and trade war. Canada itself is having issues with China and has had to cut exports of canola to China. Many farmers might start to replace those crops with hemp. So keep a look out for companies like Charlotte’s Web and Canopy. Tech might also start to rebound. Namaste has had a rough few months but is really well positioned in the cannabis space as a tech company and not a producer. Diversification is key and these three stocks provide different opportunities in the cannabis sector.