The past couple of months have seen some of Wall Street's top cannabis stocks fall from grace. The vape crisis has also sharply hit some companies with exposure in that sector.
However, the vape crisis will mend, and companies such as KushCo (OTC:KSHB) have gotten ahead of the issue by developing new vaping systems that assure compliance and purity.
Moreover, Canaccord Genuity's Bobby Burleson, said in a research note on Monday that the respiratory illnesses were likely to more quickly steer customers away from the illicit pot market.
"In our view, recent reports of acute respiratory illness linked by regulators to THC vaping (and e-cigarettes) should ultimately accelerate the shift away from the black market for cannabis products in the US," he wrote.
This could have a positive impact on businesses in the sector such as KSHB, as the black market dries up and increases demand for complaint systems.
Accordingly, this may be an enormous buying opportunity for savvy investors.
Perhaps the first company to come to mind is Canopy Growth, the world's biggest pot stock by market cap, which saw its shares decline substantially when it reported a surprising $1 billion financial loss in its recent quarterly results. Investors quickly began to fear that other well-established cannabis stocks could witness a similar decline in the weeks to come.
That's exactly what has happened with Aurora Cannabis (NYSE:ACB). In its recent financial results, the company not only failed to see a profit once again but also warned investors that it likely won't be profitable until 2020, which was a major disappointment to analysts and investors alike.
With share prices falling in light of this news and once-optimistic analysts now changing their ratings on Aurora Cannabis, investors are asking whether this is a good buying opportunity or a reflection of a deeper problem in the cannabis industry.
While back in 2018, the markets were overly optimistic, now we'd argue they have become overly pessimistic. The Canadian and American adult-use cannabis market has plenty of room to grow, especially in more populated states and provinces like California, Michigan, New York, and Ontario, where there remain relatively few dispensaries compared to its overall population.
We believe that the pendulum of investor sentiment will swing back in the months to come, and lead to solid growth for well-managed companies.
Cowen & Co. analyst Vivien Azer selected KushCo Holdings (KSHB) as her first pick in the sector, and we believe the company's strong management and diverse holdings continue to make it an excellent buy.
KushCo's price has fallen lately due to the vape crisis, but this presents a buying opportunity at today's levels.
Projections are for a 183.30% growth in sales this year, which is remarkable for any company in any sector.
And, demand will increase for compliant, certified systems such as those in the KushCo portfolio.
Aurora Cannabis could rebound and with projections of profitability next year, so now may be the time to get on board.
Another company with upside potential is vertically integrated dispensary operator iAnthus Capital Holdings (OTC:ITHUF). iAnthus ended last week at $2.13 a share, but has a price target consensus on Wall Street of $8.23, implying upside of 286%.
The allure of U.S.-focused dispensary operators has to do with the sheer potential of the U.S. market. Compared to Canada, the U.S. should dwarf its northerly neighbor in legal sales, which makes the vertically integrated model so attractive.
With regard to iAnthus, it has more than four dozen retail licenses in its pocket, including 27 open dispensaries in 11 states, according to its newest press release. Following a recent acquisition in Nevada, iAnthus has a presence in some of the most lucrative markets in the United States.
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