Wells Fargo launches coverage of four cannabis stocks

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Wells Fargo analyst Chris Carey began coverage of four cannabis stocks Thursday, with Scotts Miracle-Gro Co.’s sharpest comments in a sign of Wall Street’s growing interest in the sector.

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Wells Fargo gives Scotts Miracle-Gro SMG an overweight rating,
+5.77%,
Manufacturer of fertilizer for growing cannabis and owner of the Hawthorne line of hydroponic equipment. He rated Grogeneration Corp. GRWG,
+2.60%
and Hydrofarm Holdings Group Inc. HYFM,
+1.48%
Same Weight and as Canopy Growth Corp. CGC,
+1.23%

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Charas,
+1.31%
a low weight.

Carey set a price target of $180 per share for Scotts Miracle-Gro and said the stock is “shining green” as a buying opportunity. The stock is down 30.3% in 2021, compared to a 22.3% rise by the S&P 500 index. spx,
+1.63%

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“We see opportunity: a stock well off April’s high, a discount to peers, and
Fundamental opportunities – a pioneer in lawn/garden and hydroponics – are still ahead,” Carey wrote in a research note.

While recent volatility in hydroponic volatility remains the “elephant in the room,” the US West Coast cannabis market is working through an oversupply, causing
The hydroponic market already had record unrest against comps from years ago, he said.

“Strong operators can take advantage of the market chaos, and we think SMG can revamp its FY18 playbook to consolidate greater stake (key driver of hydroponics growth),” he wrote.

Unlike its peers, Scotts Miracle-Gro is also well established in the wider garden sector, with a major presence at major retailers such as Home Depot Inc. and Lowe’s Cos Inc. LOW,
+1.11%,
he said.

Carey set a price target of $18 per share on GroGeneration, which he described as “the top hydroponic retailer in North America” ​​with 2019 revenue growth more than four times its level in 2019. It is also priced at a discount for rapid growth. retail sector.

Shares of GroGeneration are down about 61.8% this year, compared to a loss of 24.5% by the Cannabis ETF THCX,
+3.60%,

“The runway looks attractive, with a strategy to increase the number of stores by +60% by the end of 2023; internal initiatives (e-commerce, private label); and the continued momentum of US cannabis, a key driver of demand for the hydroponic category,” wrote Carey.

Meanwhile, Hydropharm Holdings, a wholesaler, distributor, and manufacturer of hydroponic equipment and supplies in North America, achieved a price target of $33 per share. As in “pure drama” in space, Carey said

Shares of Hydrofarm Holdings are down 44.9% in 2021.

“HYFM generates all the revenue and profit in hydroponics, one of the few federal legal ways to drive the growth of secular American cannabis – this is a long-term positive,” he wrote. “However, in times of market volatility, as is happening now
US west coast, this means HYFM has been exposed. ,

Cannabis retailer and manufacturer Canopy Growth Corp. hits $8 price target.

Carey said the stock “still looks overvalued” despite its decline of about 59% this year.

“We think it will be difficult to hit ‘breakeven’ revenue in the near term except for changes to US federal cannabis laws, and are below consensus,” he wrote.

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