MKM Partners launches coverage of seven cannabis companies with cautious view

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MKM Partners initiated coverage of five Canadian cannabis companies and two U>S. multi-stage organizations on Friday with a cautious outlook, arguing that the nascent industry is likely to see supply exceed consumer spending growth, putting pressure on the current business model. Analyst Bill Kirk, an executive director at MKM, assigned sell ratings to Curaleaf Holdings Inc. and Aurora Cannabis Inc. , put neutral ratings on Canopy Growth Corp. , Tilray Inc. , Cronos Group Inc. , and gave buy ratings to Acreage Holdings Inc. and Hexo Corp. . “Among vice categories, cannabis is the
most expensive on a per serving basis (C$2.14) followed by wine (C$2.10), cider (C$1.90), beer (C $1.47), and spirits/liquor (C$1.42),” Kirk wrote in a note to clients. “Despite what appears to be incremental demand, cannabis prices continue to fall. This does not bode well for profitability, especially considering the top-seven cultivators (growers) are already harvesting at a rate nearly equal to legal channel needs in Canada.” The cannabis sector has had a rough summer with shares mostly selling off amid a rash of scandals and disappointing earnings. The ETFMG Alternative Harvest ETF has fallen 28% in the last three months, and is now down about 7% in the year to date, while the S&P 500 has gained 20%.Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.

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