Investorideas.com, a leading investor news resource covering hemp and cannabis stocks releases a snapshot looking at the growing trend of institutional coverage and funding in the cannabis sector and how a once frowned upon industry is now the big-boys new ‘darling’.
In any industry that builds success, history shows the little companies lead innovation and take the risk and once the value proposition is proven, the big companies step in to grab their share. The same can hold true for investing; small retail investors see the big picture before the institutional investors – and never has this pattern been more true than with the cannabis sector.
Retail investors can pat themselves on the back following Friday’s news that CIBC’s Institutional Equity Research team initiated coverage on Canopy Growth, Cronos and Aphria.
In their report, ‘Cannabis: The Beginning of a Global Seismic Shift’, they stated:
Our Conclusion: “Investors rarely get to witness the birth of an industry. Such historic events include the gold rush, inventions of the automobile and aircraft, and the internet. In most instances, investors rush to pour capital into the sector, and while the industries develop, very few companies live up to their lofty expectations. We expect cannabis to follow this course. Dozens of small/medium-sized firms will likely earn moderate revenues and earnings, but our view is that only a handful will come to dominate the global market. We believe Canopy and Cronos are likely to be two of those winners; meanwhile, we view Aphria as a manufacturing and automation expert, but believe concerns about capital allocation and corporate governance could deter investors. Effective January 17, we initiate coverage of Canopy Growth with an Outperformer rating and $65 price target; Cronos Group, with an Outperformer rating and $22 price target; and Aphria, with a Neutral rating and $10 price target.”
Retail investors usually see a bump in the share price once the bigger institutional investors step in and that was definitely the case following the January 15 news from CBD beverage company, American Premium Water Corporation (OTC:HIPH) that it had entered into a financing agreement with an institutional investor at a $0.40 valuation, ten times the current market valuation. As part of the agreement, a substantial portion of the Company’s convertible debt will be retired. The retirement will be reflected in the Company’s 1st quarter 2019 financials.
American Premium CEO, Ryan Fishoff, commented, “I am thrilled to announce that the Company has entered into this agreement at a 10x valuation! This is an affirmation of the Company’s business plan and the initiatives it has implemented over the past year. It’s a vote of confidence to the direction of the Company and we will continue to work hard to execute on the business plan to achieve the goals and benchmarks that I laid out for 2019. There is still a tremendous amount of work to do, but we (the Company) are certainly emboldened by this financing agreement, which will give the Company the capital to implement its 2019 plan. This agreement also meets the Company’s goal to reduce convertible debt and strengthen the balance sheet. This is a win for the Company and our shareholders.”
Piper Jaffray analyst Michael Lavery also joined the pro-cannabis ranks in early January, initiating coverage of Tilray and Canopy Growth saying, “We do believe the long-term growth opportunities are significant – both from transitioning illicit trade to legal sales, medical sales, and from transitioning sales in health & wellness categories to CBD-infused products.” Canopy Growth rose 13 percent following the news.
TLRY also gained over 19% mid-January following news that its largest shareholder, Privateer Holdings, led by venture capitalist Peter Thiel, co-founder of PayPal, would not sell their shares until the first half of 2019.
So it’s clear the impact institutional investors have in the market, but their entry into the cannabis market is still just limited to a handful of players. Retail investors can bet there are more to come.
For investors following cannabis stocks, Investor Ideas has created a stock directory of publicly traded CSE, TSX, TSXV, OTC, NASDAQ, NYSE, ASX Marijuana/Hemp Stocks
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