Cowen, the first major Wall Street research house to follow marijuana stocks, added two new names to its list of covered stocks on Tuesday, and said one in particular is its top pick right now.
Of Cronos, Cowen’s senior analyst and marijuana research team leader at the firm, Vivien Azer, says “Through its partnership with Ginkgo Bioworks, CRON aims to produce eight target cannabinoids (including rare strains such as THCV) at a fraction of the current cost, at commercial scale and at a higher purity than what is currently available. While Aphria’s (NYSE: APHA) investment provides significant additional financial capacity and operational capabilities to expand distribution, investments needed to expand its global footprint will likely prevent meaningful profitability over the next few years.”
But it’s Aurora Cannabis that the firm says is the Top Pick in the sector, pushing Canopy Growth from the top spot, citing growth opportunities in the Canadian legal recreational market and rapidly-growing international medical market.
Shares of Aurora Cannabis jumped as much as 9% Tuesday after Cowen issued its report, assigning the stock an Outperform rating and a C$14 price target ($10.50) – 38.5% higher than the current price.
Cowen noted that with 20% market share in Canada and a significant international footprint with a presence in 23 markets worldwide, Aurora has a distinct advantage over other pot stocks.
“ACB is well positioned to benefit in the early innings of the Canadian adult use market, given its impressive 20% market share to date and #2 position by in-stock (stock keeping units), based on our analysis,” Azer wrote. “In addition, the company’s large cultivation footprint, capable of producing over 575,000 kg, provides ACB with the necessary infrastructure to weather early storms in adult use while continuing to grow higher-value revenues in the medical market.”
Azer is expecting the Canadian recreational and medical markets to represent a total addressable market of roughly C$12 billion by 2025, and also bumped up the company’s international medical marijuana market size forecast to $31 billion by 2024, up from $9 billion.
Aurora’s presence in 23 international markets is a big plus and should help boost the company’s ability to capture global market share. Cowen is anticipating Aurora will generate revenue of C$305 million this fiscal year, and expects revenue to rise to C$742 million by fiscal 2020, and C$1.34 billion by fiscal 2022.
Cowen joins Jefferies—which initiated coverage of Aurora Cannabis just last week, rating the stock a buy with a price target of C$12—in covering the stock, giving ACB four bullish analysts in its corner.