TLRY Stock Leads Latest Wall Street Marijuana Stock Recommendations
One of the major themes I’ve tracked in the marijuana market over the years is the up-and-down relationship that pot stocks have had with Wall Street and institutional investors. Lately, we’ve been seeing some major changes in that relationship, including a recent positive development for Tilray Inc (NASDAQ:TLRY).
Before I delve into the positive news for Tilray stock, I’ll go through an overview of what’s been happening regarding marijuana stocks and Wall Street.
At first, Wall Street was largely locked out of the marijuana industry. Since federal U.S. law prohibits marijuana, banks can’t legally hold any cash that’s directly related to the marijuana trade.
It’s for precisely that reason that many marijuana companies across the U.S. have to keep their profits as cash. This has caused significant problems, not only on the accounting side of things, but also in terms of safety. There have been stories of armed robberies.
The legal situation also means marijuana companies have difficulty getting loans from banks, which stifles the possibility for growth.
There has been some progress on the political front, however. The Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act) is proceeding through Congress and, if passed, would allow banks to do business with cannabis companies.
But, as with all things in U.S. politics, the political deadlock could sink the SAFE Banking Act, even if the sentiment behind the legislation enjoys bipartisan support.
All this has served to create an atmosphere in which Wall Street is reluctant to get involved in the marijuana business. That’s seen in how the big investment banks treat the industry.
But we’re starting to see a change in attitude.
To be fair, Wall Street has been in the process of changing its tune for a while when it comes to pot stocks. But in the past few weeks, we’ve seen some important developments regarding institutional investors and the pot industry.
One of those developments happened in late April. Bank of America Corp (NYSE:BAC) resumed coverage of three marijuana stocks.
The bank was most favorable toward Canopy Growth Corp (NYSE:CGC), rating it a “Buy.” Bank of America is projecting that Canopy Growth stock will gain about 28.5% within the next 12 months. (Source: “UPDATE: BofA Securities Reinstates Canopy Growth (WEED:CN) (CGC) at Buy,” StreetInsider.com, April 28, 2021.)
That was a majorly good sign that banks were once again getting excited about the potential that’s contained within the marijuana industry.
Following suit, Jefferies Financial Group Inc (NYSE:JEF), a New York City investment bank, has released some bullish reports on pot stocks, specifically TLRY stock.
Jefferies analyst Owen Bennett upgraded his position on Tilray stock following the closing of Tilray’s merger with Aphria Inc (NYSE:APHA) on May 3, rewarding it with a double-upgrade to a “Buy” rating. (Source: “Tilray Shares Spike After Jefferies Upgrades to ‘Buy’,” BNN Bloomberg, May 7, 2021.)
Bennett set a $23.00 price target for TLRY stock and made it his “top pick” in the cannabis sector. As of this writing, Tilray stock is trading around $16.00. In other words, the Jefferies analyst is predicting more than a 40% gain.
Bennett looked at Tilray Inc’s sales and profit profile relative to its industry competitors when recommending TLRY stock. He also wrote about Tilray’s potential to capture a bigger share of the U.S. market, as well as the company’s “compelling optionality” for the U.S. pot industry when the industry is eventually legalized at the federal level.
Between the company’s merger with Aphria Inc and its growing sales numbers, Bennett projects that Tilray Inc will triple its revenue this fiscal year to $601.5 million and hit $2.7 billion by 2029.
“In Canada, [Tilray has] a leading portfolio of brands, supported by a now even more efficient cost structure,” said Bennett.
In Europe, the market is now picking up, while Tilray’s scale and Aphria’s unique German positioning make it perfectly suited to succeed. And in the US, the combined company’s broader consumer goods portfolio and strong balance sheet supports excellent optionality around both US [tetrahydrocannabinol] and [cannabidiol].
This is a pretty solid take.
I didn’t like Tilray stock when it first hit the market, as it was dramatically overhyped. But after a few steady years of drops, TLRY stock now seems more appropriately priced and ready to resume gaining.
Chart courtesy of StockCharts.com
What’s more, the merger between Tilray Inc and Aphria Inc has catapulted the company to the forefront of pot investors’ minds, as the combined company appears to be challenging Canopy Growth Corp for the unofficial title of industry leader.
I’m still more bullish on other marijuana stocks (Canopy Growth stock included), but all things considered, it appears that Tilray stock has a good chance to see significant growth.
Taking a macroeconomic view, the bullish sentiment from Wall Street is great news for pot stock investors.
More than anything, the potentially huge flood of capital that will hit the market by way of institutional investors if marijuana is federally decriminalized or legalized in the U.S.—or even if the SAFE Banking Act is passed—could lead to huge rewards from marijuana stocks.
Whether you’re bullish specifically on Tilray stock, or you’re more interested in what the increased bank coverage means for pot stocks in general, there’s no way to read the aforementioned news negatively as a pot bull.
The facts on the ground are that marijuana stocks are in the midst of recovering from an overcorrection just as institutional investors get into the game, making the market ripe with opportunity.