Guggenheim analysts attended the annual Institutional Capital And Cannabis Conference Monday in NewYork, a meeting of roughly 500 investors, potential investors, politicians and lobbyists discussing the marijuana space.
Analyst Laurent Grandet outlinedkey takeaways from the conference.
Canndescent, Canopy Growth Corp. (NYSE: CGC), Constellation Brands, Inc. (NYSE: STZ), Excite, Molson Coors Brewing Co. (NYSE: TAP), Surterra Holdings and YAHOO JAPAN Cor/ADR(OTC: YAHOY) were mentioned in the Guggenheim note.
Constellation Brands, Canopy Growth
“The company has invested $4.2 billionin Canopy Growth for a total ownership of 35 percent. Our biggest concern with Constellation is that, in the absence of the next big growth opportunity, the company has made a sizable investment in something that exceeds the current risk profile of the business.”
The analyst expressed concern over the investment, as the move positions the company to lever substantial debt without any clear path to generate meaningful returns.
A takeaway from the conference is that the business opportunity incannabis is large, with a wide range of possibilities, Grandet said.
“It was interesting to note that even companies targeting the recreational space at the conference pitched a health and wellness angle, especially in comparison to alcohol.”
Grandet does not anticipate any other beverage players entering the cannabis sectorbesides Molson Coors or Constellation for at least another year. And the timeline for federal U.S. legalization is unclear, the analyst said.
“To note, the panel was also not shy to add that legalization is one thing, but implementation will be a different story. In our view, we should not expect many beverages opportunities coming before the second half of 2019 at best.”
Most cannabis companies appear overvalued, as some public companies are trading well above sales, according to the Guggenheim report.
“Many investors told us the biggest surprise over the last year was how much and how quickly capital flowed into the industry. Consequently, companies are going public in Canada much sooner than originally planned to access easy money.”
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