Each week boutique corporate advisory firm EverBlu Capital explores different sectors and trends, along with which companies Stockhead readers should put on their watch list.

As the cannabis industry continues to gain momentum globally, executives and investors are bullish on the sector and its future opportunities for solid returns.

From medicinal to recreational use, the growth of the cannabis sector and rising opportunities for investors both locally and abroad can’t be ignored, according to Australian boutique corporate advisory firm EverBlu Capital.

Despite slower reform than anticipated this year for the legalisation of marijuana at the US federal level, EverBlu analyst Justin To said executives and investors remain bullish on the rising cannabis sector.

Use and possession of cannabis is illegal under federal law for any purpose in the US. However, policies regarding medicinal and recreational use of cannabis vary greatly among different states with many in conflict with federal law.

“Federal politicians who ran last year promised reforms and it’s just dragging on much longer than people thought it would,” To said.

“But investors see this as a buying opportunity as companies are trading at low earnings multiples.”

He said optimism in the cannabis sector was further supported by one of the world’s largest producers Canada’s Canopy Growth. It just made a ~US$300m acquisition of weed gummies maker Wana Brands in the US, conditional on federal legislative reform.

Canopy Growth is harnessing growing demand for pot edibles such as gummies and beverages during the COVID-19 pandemic as it pursues cross-border expansion.

Furthermore, other jurisdictions worldwide have reformed, or are expected to reform, legislation for both medicinal and recreational cannabis.  The recreational variant contains tetrahydrocannabinol or THC, the ingredient that causes a user to get high.

“Cannabis companies have seen revenue growth in the whole lockdown period and a lot of these companies are trading at significant discounts, with some even trading at the value of cash they have on the books,” To said.


Improved debt financing for sector to foster growth

Cannabis companies have long faced high pricing to raise debt financing but To said credit and lending improvements for cannabis companies had further improved their growth and expansion prospects.

“Trulieve Cannabis Corp recently raised around $350m by issuing a five-year secured bond callable after two years with an 8% coupon,” he said.

“While it may be slightly higher than companies in other industries it’s much better than what it was in, say, 2018 where the coupons were up to 10%.”

The growing use of cannabis-based treatments for a broad range of medical conditions from cancer to epilepsy, mental health and even COVID-19 is further bolstering investment interest in the sector.

Australia’s medicinal cannabis use is at an all-time high with the TGA approving 13,666 prescriptions in September alone.

“As even governments and healthcare see the use case for cannabis in the medicinal area, we will definitely see continued uptake,” he said.

To said many cannabis stocks were not traded on major stock exchanges which did not work in their favour but presented good buying opportunities.

“A lot of cannabis stocks aren’t traded on major stock exchanges like the NASDAQ or NYSE and tend to be on smaller or alternative exchanges and are in inefficient markets so that is why they could also be trading at a discount,” he said.

“But it was noted by CB1 Capital that several investment banking analysts attended the most recent Ojai cannabis conference, which is a sign the financial world is building the plumbing for a Wall St relationship.”


EverBlu cannabis stock picks

To has flagged several cannabis stocks for investors to put on their watch list.  His standout was Australia’s Creso Pharma (ASX:CPH) which has seen its share price hit a three-month high on the back of positive announcements.

“Creso Pharma have an extremely experienced team of board members and advisors, including Bruce Linton who has led Canopy Growth from startup to a US$17bn company during his six-year tenure and Dr Miri Halperin Wernli who was the founder of Creso and director of MindMed. The recent appointment of William Lay as the Executive Vice President provides Creso with a wealth of M&A and capital markets experience, as Will has worked on over $5bn in cannabis transactions and has led one of the largest cannabis acquisitions in history.” To said.

“Revenue growth for the last reporting period is up 98%, which was largely driven by Creso Pharma’s wholly owned indoor cannabis subsidiary Mernova, which has seen revenues go up over 519%.”

Creso recently acquired Canadian company ImpACTIVE, whose assets include CBD-based products that provide anti-inflammatory relief to professional and amateur athletes suffering from chronic muscle and joint pain. Everblu is Creso Pharma’s corporate advisor.

Another local player Little Green Pharma (ASX:LGP) is also a standout on To’s watch list. The company was one of the first to nab a licence to cultivate and manufacture medicinal cannabis in Australia. Little Green Pharma’s focus on high quality medicines, supporting doctors and patients has meant the company’s been able to build a significant market share.

Venturing to North America, which is the largest cannabis market in the world, there were a few standout stocks for To.

Aurora Cannabis trades on the Toronto Stock Exchange (TSE) and NASDAQ as ACB, focusing on growth and distribution of cannabis products. It also sells indoor cultivation systems and hemp related food products

Canopy Growth (TSE:WEED) and (NASDAQ:CGC) is well-positioned in the growing Canadian recreational cannabis market and is one of the world’s largest cannabis producers by market cap with CAD $6.37 billion market cap. The company has been seeing strength in its business channels in recent months.

GrowGeneration (NASDAQ:GRWG) is one of the market leaders for growth products for cannabis including hydroponics, climate control, lighting, and greenhouses.  As more jurisdictions legalise medical and recreational use of cannabis, the company is expected to see an uptick in its bottom line.

For investors interested in seeking to learn more about cannabis producers and their future plans, To said sector conferences may be worth noting including the USA CBD Expo in Chicago this week and the virtual NY Cannabis insider Conference.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.