Big Canadian marijuana stocks are hot. But are they too hot? Not according to Wall Street.
The biggest of them all, Canopy Growth (NYSE:CGC), has enjoyed a great ride so far in 2018, with shares soaring nearly 80%. Aurora Cannabis (NYSE:ACB) and Tilray (NASDAQ:TLRY) have been neck-and-neck for the No. 2 spot in terms of market cap. Aurora is up close to 40% year to date, while Tilray’s share price is up around 10%.
But analysts surveyed by The Wall Street Journal think all three of these top marijuana stocks can deliver even greater gains over the next 12 months. In fact, analysts project that Aurora Cannabis, Canopy Growth, and Tilray will rise by at least 40%.
Why is Wall Street so optimistic about these big pot stocks? Three reasons especially stand out.
1. O Canada
We’ve only seen a hint at the impact on revenue for major cannabis growers from the opening of the Canadian recreational marijuana market in October 2018. None of the big three Canadian marijuana stocks have officially reported financial results since the launch of the recreational market.
Aurora Cannabis provided a sneak peek at its results for the quarter ending Dec. 31, but its revenue guidance was lower than what analysts expected. Don’t let that fool you, though. The Canadian opportunity is a major reason behind Wall Street’s bullish take on these stocks.
It’s important to remember that the first few weeks and months of the Canadian recreational market were hampered by limited production capacity. Analysts are fully aware, though, that Aurora, Canopy, and Tilray are beefing up their capacity. Any problems on this front are only temporary.
Wall Street also knows there is a potentially massive market that still hasn’t opened up in Canada. Regulations for cannabis edibles and concentrates should be finalized later this year.
Canopy Growth and partner Constellation Brands have already announced plans to launch a broad lineup of cannabis-infused beverages. Tilray is working with Anheuser-Busch InBev to research nonalcoholic cannabis-infused beverages. Aurora doesn’t have a major partner at this point, but the company won’t sit on the sidelines with the expanded market that’s on the way.
2. The world is going to pot
Canada is only part of the equation for Wall Street’s calculations of the prospects for the big cannabis producers. The global medical marijuana market presents an even greater opportunity.
As of the end of 2018, 32 countries had legalized medical cannabis. These include major economic powers such as Australia, Germany, South Korea, and the United Kingdom. Nine of the countries where medical cannabis is legal claim populations larger than Canada’s.