The cannabis industry is mostly high on Tuesday with the exception of some like Aurora Cannabis that hovered over a stock flat after Piper Jaffray initiated coverage with a neutral rating, saying that the stocks are overvalued.
Aurora ACB, +1.59% ACB, +1.44% fell 1.1% in early trading but was able to recover into a trading flat in the midday and reverses its losses. The rating stands in contrast to the equivalent of buy rating (outperform) that Piper assigned to five other cannabis names it started coverage of Tuesday. Michael Lavery, who leads the analysts for Aurora, says that the company lacked visibility on parts of their long-term strategic checklist.
“Aurora has a premium valuation relative to peers but less visibility on these key growth opportunities,” Lavery wrote, referring to Canada, the European Union, and the U.S. CBD and U.S. THC markets. The latter two are ingredients in the cannabis plant; CBD is nonintoxicating but widely held to have wellness properties, while THC is the ingredient that causes the high associated with cannabis.
“It has leading scale in Canada, but oversupply looks likely in 2020,” the analyst wrote. “EU-GMP certification at scale is a slow, opaque process and still pending, and without visibility on U.S. market entry (CBD or THC), Aurora’s relatively rich valuation does not yet look compelling to us.”
Meanwhile, other pot companies are expected to perform well in the market in the next few days. Piper analysts believes, in contrast with Aurora, that Cronos CRON, +5.28% , CRON, +5.49% will deliver a strong top-line growth.
“We believe its partnership with Altria MO, +1.74% provides important capital ($1.8B cash) and access into 230,000 U.S. retail outlets, as well as regulatory and vapor product expertise,” said Lavery. “We expect Cronos to have modest near-term revenues from Canadian cannabis production, but believe it has significant potential growth opportunities with CBD products in the U.S., including through its pending acquisition of the Lord Jones brand.”
