Cannabis: Stocks Rally on President’s Repost of Video Touting Benefits of CBD for the Elderly
After the rally, we think these stocks are likely to be fairly valued or slightly overvalued.
On Sept. 29, shares of Curaleaf were up more than 30%, Green Thumb up nearly 20%, and Tilray up more than 50%. The rally followed US President Donald Trump’s social media repost of a video touting the benefits of CBD for the elderly.
Why it matters: Cannabis companies have continued to suffer from price compression, illicit competition, hemp-derived alternatives, and THC beverages. Moreover, the continued illegality at the US federal level creates restrictions, including access to traditional financing options.
- The video, which appears to directly address the president, argues for the health benefits of CBD for the elderly. Even if CBD was covered by Medicare, we would not expect a significant benefit to the cannabis companies we cover. Cannabis companies make most of their revenue from THC.
- Hemp-derived CBD was legalized in the 2018 farm bill, leading to a market flooded with competition. THC production is limited by licenses and remains illegal at the federal level. We think the rally reflects hopes that the post means better odds that US THC federal prohibition is eased.
The bottom line: We maintain our fair value estimates for no-moat Curaleaf ($3.15 per share), no-moat Green Thumb ($10), and no-moat Tilray ($1.40). Our fair value estimates already reflect the eventual end of US federal prohibition.
- After Sept. 29’s rally, we think shares are likely to be fairly valued or slightly overvalued. We reiterate our Very High Uncertainty Ratings for all three, as they have yet to generate consistent positive free cash flows.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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