Cannabis stocks were trading mostly up Wednesday morning after Piper Jaffray started coverage of the group.
What Happened
Piper Jaffray's Michael Lavery said in his initiation note that the cannabis industry is in its early stages, with "much to learn," according to CNBC.
The long-term growth opportunities are "significant" as the global cannabis market benefits from a transition from illicit trade to legal sales, along with usage in the medical space, in the analyst's view.
Piper Jaffray initiated coverage of Tilray Inc (NASDAQ:TLRY) and Canopy Growth Corp (NYSE:CGC) with Overweight ratings and $90 and $40 price targets, respectively.
Tilray boasts the right structure for long-term global growth from its global existing relationships across the medical and beverage sectors, according to Piper Jaffray.
On the other hand, Canopy Growth's existing large size can be leveraged to create near-term momentum that should generate the necessary resources to help fuel long-term opportunities, Lavery said.
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Why It's Important
The legalization of cannabis for recreational use in Canada, coupled with the medical market in Europe and CBD-infused products in the U.S. created a $15 to $50-billion market, Lavery said. The global cannabis market has the long-term potential to increase tenfold to $250 billion to $500 billion in size, he said.
The cannabis sector is also attractive to investors as governments worldwide are drawn to the drug as a new source of tax revenue, the analyst said.
What's Next
Legalization of cannabis in the U.S. could be a hot topic ahead of the 2020 presidential election, according to Piper Jaffray. Encouragingly, both Democrats and Republicans "could conceivably co-opt the issue" of legalization, which would likely create new inflows of capital and the potential for M&A activity, the sell-side firm said.
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