3 Wall Street, first marijuana stock, expects to drop by at least 25% – The Motley Fool

The big day is fast approaching. In just over a month, October 17, recreational marijuana will be available for sale at licensed clinics across Canada. When it is fully legal, the sale of weeds for adult use should generate high demand and large dollar amounts for the industry.

In anticipation of this legalization – and the big profits that should follow – investors in marijuana stocks and Wall Street have pushed valuations of many pot stocks into nosebleed territory. Some of these marijuana stocks are still valued slightly below the target price per share set by Wall Street. Conversely, there are a handful of marijuana titles whose price targets are well below their current course. Keeping in mind that Wall Street's price targets are nothing more than analysts', here are the top three marijuana stocks that should lose at least a quarter of their value.

Source of the image: Getty Images.

Tilray

At the present time, there is no warmer stock on the market than the Canadian medical cannabis producer Tilray (NASDAQ: TLRY). After valuing its common stock at $ 17 per share on July 18, Tilray closed close to $ 105 per share on Wednesday, September 12. For those who keep a home score, this represents an increase of 517% in less than two months. Tilray is also close to a $ 10 billion market capitalization.

However, the Wall Street price target for the company is only $ 52 per share, a slight decline of more than 50%! Although Tilray does not have the same dilution problems as most pot stocks that have been published before, there are still many concerns regarding its existing valuation.

For example, much of this recent operation is based on the idea that Tilray will soon find a brand, alcohol, tobacco or Big Pharma partner. Technically, she already has a Big Pharma partner in Novartis via its generic subsidiary, Sandoz. Nevertheless, betting on a partnership or investment in Tilray – or in any action – is not a good decision.

Beyond the rumors, Tilray has a long way to go to safeguard its valuation. An estimated 912,000 square feet of production and processing space by the end of the year. With just over 850,000 square feet devoted to growing cannabis, Tilray may not be able to break into the top 10 producers by maximum annual output before next year. In addition, with the expansion a priority, Tilray will spend a lot of money, which means that profitability is not a guarantee.

In short, I totally agree with Wall Street that Tilray is about to come down.

Source of the image: Getty Images.

Cronos Group

Another high-performing marijuana title that has toured the partnership mania is Cronos Group (NASDAQ: CRON). Over the past four weeks, until September 12, the Cronos Group share price is $ 0.03 per share after doubling. However, according to the price target granted by Wall Street, the Cronos group could experience a drop of 44%.

To be clear, Cronos Group is not a real train accident. It is growing in international markets, which will be important to offload excess supply in Canada, and it recently formed a joint venture with a group of investors to essentially double its production capacity with a 850 facility. 000 square feet that can accommodate 70,000 people. kilograms of cannabis a year.

But there are some problems here that clearly preoccupy Wall Street. For starters, even though Cronos can produce about 140,000 kilograms of annual production, it will take a long time before everything is put online. This will make it difficult for the company to enter into lucrative long-term supply contracts.

At the same time, spending on increased capacity and international infrastructure will make it extremely difficult for the company to generate meaningful earnings per share. In fact, the Cronos Group is currently valued at nearly 150 times next year's earnings – and this figure could increase further if the number of outstanding units of the company continues to rise in bids.

In simple terms, there are much better values ​​in the maximum annual production range of 100,000 to 150,000 kilograms ( OrganiGram Holdings) than the Cronos group.

Source of the image: Getty Images.

Canopy Growth Corp.

Last but not least, the largest marijuana stock per market, Canopy Growth Corp. (NYSE: CGC)Wall Street predicts that the company that triggered this wave of speculation on partnerships and investments over the past month will lose 25% of its value, assuming that the consensus price target is accurate.

Canopy Growth ignited the industry when, on August 15, it announced that Modelo and Corona brewers Constellation Brands (NYSE: STZ) would take a $ 3.8 billion stake in the company. It was the third investment of its kind in the world's largest market capitalization. Assuming the deal gets the go-ahead from regulators and Constellation receives and exercises its 139.7 million warrants, it could become a majority stake in Canopy Growth (more than 50% of the shares).

Of the three pot stocks here, the valuation of Canopy Growth is closest to the meaning. It owns the most famous cannabis brand in Canada (Tweed), has a multichannel system to sell its products, is ready to operate in many foreign countries and has the marketing expertise of Constellation Brands.

Perhaps the short-term fatal flaw for Canopy Growth is the fact that its excessive spending on capacity expansion, branding and infrastructure in foreign markets is likely to waste money for the rest of his exercise. Of course, Wall Street and investors have given Amazon a free pass to reinvest its cash flow from operations, but there is no guarantee that they will do the same for Canopy Growth.

As with Tilray and Cronos Group, I agree with Wall Street that a drop seems likely.