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article imagePiper Jaffray joins brokerages covering the cannabis industry

By Karen Graham     Jan 9, 2019 in Business
Piper Jaffray initiated coverage on cannabis producers Tilray and Canopy Growth on Tuesday, joining a short — but growing — list of Wall Street brokerages watching the industry.
Minneapolis, Minnesota-based Piper Jaffray, founded in 1895, has joined a small group of Wall Street investment banks and financial services companies covering the growing cannabis industry.
This is a significant move for Piper Jaffray, especially as the cannabis industry continues to gain legitimacy. Until now, most cannabis investors had to rely on reports from Cowen analyst Vivien Azer, one of the first from a major firm to cover the sector. Azer is considered to be Wall Street's top cannabis analyst.
Piper Jaffray analyst Michael Lavery, while admitting they have a lot to learn about the cannabis industry, went ahead and set overweight ratings Tuesday on both Canopy Growth and Tilray, telling clients to expect significant growth, according to CNBC.
Employee Jason Gagne trims cannabis plants at Up's factory in Lincoln  Ontario
Employee Jason Gagne trims cannabis plants at Up's factory in Lincoln, Ontario
Lars Hagberg, AFP/File
"We do believe the long-term growth opportunities are significant — both from transitioning illicit trade to legal sales, medical sales, and from transitioning sales in health & wellness categories to CBD-infused products," Lavery wrote. "While the timing of further changes is difficult to predict, the pace of further legalization appears to be accelerating."
Lavery may be on the right track when it comes to predicting strong growth in the industry because Azer issued her 2019 cannabis outlook on Tuesday and raised her projection for U.S. sales to $80 billion by 2030.
"We expect continued growth in newly established U.S. states, and more robust growth in Canada as more supply comes online and new form factors hit the market," Azer wrote on Tuesday.
"Given our outlook for continued strong growth in North American cannabis in 2019, we remain constructive on all three of our publicly traded cannabis stocks, including Canopy, Tilray and Kush Company." (an American company that sells packaging for the cannabis industry.)
Overweight rating for Tilray
Piper Jaffray gave Tilray and Canopy Growth "overweight" ratings on Tuesday. What does this mean? Simply put, "Overweight" is part of a three-tiered rating system, along with "underweight" and "equal weight" used by financial analysts to indicate a particular stock's attractiveness.
As an example: If a particular stock is selling for $500 and the analyst feels that the stock is worth $600, the analyst would be declaring the stock to be overweight. And this is exactly what Piper Jaffray did on Tuesday when it initiated coverage on Tilray, giving the company a $90 price target based on its strong presence in the medical (Novartis) and beverage (AB InBev) sectors.
"Tilray has the ingredients for long-term growth," the analyst wrote. "We believe its medical partner, Novartis, its EU capacity, and clinical trials position it well for global medical growth. We consider its relationship with Privateer (US operator and 77% owner) to be valuable, both for brands like Marley Natural (with inherent consumer equity) and for its US operations, especially if US legalization comes."
Canopy Growth gets an overweight rating
Canopy Growth was also given an "overweight" rating by Lavery on Tuesday, with him telling clients to expect shares to rise 40 percent over the next 12 months. That figure is only 34 percent higher than Tuesday's closing price.
"While it is difficult to predict how Canopy may be positioned long-term, we believe its large size currently (relative to competitors) is likely to help drive near-term momentum that can provide resources to help fuel long-term growth," he wrote.
Lavery cited Canopy Growth's partnership with the beverage company, Constellation Brands, and its recent acquisition of hemp researcher Ebbu. Lavery also notes that Canopy Growth is also expanding its licensed capacity in Canada from 4.3 million square feet to 5.6 million square feet, giving the company about 35 percent of industrial capacity.
Current stock prices as of 11:30 a.m. ET
Tilray shares trading at $82.4, down $0.36 with a loss of 1.06 percent.
Canopy Growth shares trading at $32.5, up $2.86 with a gain of 9.65 percent.
More about Piper Jaffray, Cannabis, legitimacy, overweight rating, expanding market
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