The delay in the legalization of marijuana at the federal level in the U.S. has impacted investors’ interest in marijuana or cannabis stocks. Nonetheless, more and more states are legalizing cannabis. Medical cannabis is now legal in 39 states and Washington, D.C., while recreational cannabis is approved in 21 states and Washington, D.C. Despite the delay in federal reforms, Wall Street is bullish about the following cannabis stocks.
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Curaleaf (CURLF)
Curaleaf (CURLF) is one of the leading multi-state operators in the U.S., having a presence in 19 states with 148 dispensaries. The company also established its presence in Europe by acquiring EMMAC Life Sciences in 2021.
Curaleaf’s revenue increased 7% year-over-year to $340 million, while adjusted EBITDA increased 18% to $84 million in Q3 2022. However, the company continued to be unprofitable on a GAAP basis. Curaleaf recently announced the closure of the majority of its operations in California, Colorado, and Oregon as part of its effort to streamline its business and reduce costs. The company also cited price compression and the lack of enforcement of the illegal market as the reasons for exiting these markets.
Is Curaleaf a Good Stock to Buy?
Reacting to these closures, Haywood Securities analyst Neal Gilmer stated that the company made a prudent decision that would be “accretive to margins and profitability given the difficult operating environment in these states.”
Furthermore, he believes that these closures, along with other cost-cutting initiatives, would help in “significant cash generation throughout 2023 and strengthen Curaleaf’s balance sheet.” Gilmer reiterated a Buy rating with a price target of C$9.25.
Wall Street is highly bullish about Curaleaf and has a Strong Buy consensus rating based on six unanimous Buys. The average CURLF stock price target of $7.66 implies 96.4% upside potential. Shares have declined 55% over the past 52 weeks.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) is an interesting alternative to gain exposure to the cannabis industry. It is a real estate investment trust (REIT) that leases specialized properties to state-licensed operators for their regulated cannabis facilities. As of December 31, 2022, the company owned 110 properties in 19 states. It offers an attractive dividend yield of over 8%.
Last month, IIPR shares fell drastically after the company announced that three of its tenants (SH Parent (Parallel), Green Peak (Skymint), and Medical Investor Holdings (Vertical)) were in default on some rent payments. The company collected 92% of its rents for January 2023 as of the date of the announcement (January 18).
Is Innovative Industrial Properties a Buy or Hold?
BTIG analyst Thomas Catherwood lowered his price target for Innovative Industrial Properties to $179 from $196 following last month’s operational update but maintained a Buy rating.
Catherwood noted that while management proved its ability to resolve tenant defaults (as in the case of Kings Garden) and re-lease vacant facilities, “an eviction of Green Peak and Parallel would be the company’s largest test to date.” The analyst expects IIPR to resolve the recently announced defaults with “little-to-no impairment of asset value, which should further validate the company’s strategy and ability to execute in a challenging market.”
IIPR scores Wall Street’s Strong Buy consensus rating based on three Buys and one Hold. The average IIPR stock price target of $149.67 implies 72.5% upside potential. Shares have tanked about 54% over the past year.
Jazz Pharmaceuticals (JAZZ)
Biopharma company Jazz Pharmaceuticals (NASDAQ:JAZZ) develops medicines focused on neuroscience and oncology. The 2021 acquisition of GW Pharmaceuticals helped Jazz gain access to Epidiolex (contains cannabidiol or CBD), the first marijuana-derived drug to be approved in the U.S. This drug is also approved in Europe, where it is called Epidyolex.
Jazz Pharmaceuticals’ pipeline includes CBD-based as well as non-CBD drugs. The company aims to deliver at least five novel product approvals by the end of this decade.
Is Jazz Pharmaceuticals a Buy, Sell, or Hold?
Following an analyst event last month, Needham analyst Ami Fadia reiterated a Buy rating on Jazz Pharmaceuticals with a price target of $208. Fadia believes that Jazz is “well positioned to execute through 2023, the year it will finally face generic competition on Xyrem, and hit its targets for Vision 2025.”
Jazz earns Wall Street’s Strong Buy consensus rating based on seven unanimous Buys. The average JAZZ stock price target of $206.86 indicates a possible upside of 40% from current levels. Shares have risen nearly 5% over the past 52 weeks.
Conclusion
The lack of reforms at the federal level has adversely hit investor sentiment about cannabis stocks. Nonetheless, Wall Street analysts are upbeat about Curaleaf, Innovative Industrial Properties, and Jazz Pharmaceuticals based on the massive growth prospects in the marijuana space. However, investors should remember that most of the cannabis stocks are generally very volatile and high-risk investments.
