It always happens when there is a new kid on the block. The huge interest and momentum buying drives up shares as people hungry to get in pay more than they should for fear of missing out. It happened during the dot-com bubble 20 years ago, and it’s happening now as the marijuana industry grows, and the United States looks to be edging toward legalization.
Already, 11 states have legalized recreational sales, as has the country of Canada, but as with any nascent investment idea, stocks that go sky-high often come crashing back to earth as short sellers invade. We recently covered the surge in short interest in the industry.
The good news for investors that may have missed the first train that left the station is that the quality cannabis stocks have all backed up. For those with a long-term horizon, now may be a good time to buy some shares, put them in your account and be patient.
Merrill Lynch has five pot stocks rated Buy, and all have solid upside potential.
This company has made a string of acquisitions to grow the scale of its overall business and saw industry-leading sales in the first quarter. Aurora Cannabis Inc. (NYSE: ACB) produces and distributes medical cannabis products. It is vertically integrated and horizontally diversified across various segments of the cannabis value chain, from facility engineering and design to cannabis breeding, genetics research, production, derivatives, high value-add product development, home cultivation, wholesale and retail distribution.
The company’s products consist of dried cannabis and cannabis oil, CanniMed vegan capsules and hemp products, as well as sells vaporizers, consumable vaporizer accessories and herb mills for using herbal cannabis products. It also operates CanvasRX, a network of cannabis counseling and outreach centers, and it provides cannabis analytical product testing services.
Merrill Lynch has a $10 price target on the shares, but no Wall Street consensus target was posted, even though other analysts cover the company. The stock was last seen trading at $6.95 per share.
This could be an off-the-radar play for investors looking for a marijuana play with lower name recognition. CannTrust Holdings Inc. (NYSE: CTST) produces and distributes pharmaceutical-grade medical cannabis products in Canada. It sells dried cannabis and oil extractions to clients based on the medication documentation provided by health care practitioners. The company has a partnership with Gold Coast University Hospital.
CannTrust also focuses on developing nanotechnology to create new products in the medical, recreational, beauty, wellness and pet markets. In addition, the company recently completed a successful secondary offering, and management noted in late April that it expects to report strong first-quarter results.
The Merrill Lynch price target for the shares was $8. The stock closed trading on Thursday at $2.93 a share.