Why Stock Selection Is So Critical for Cannabis Investors

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Choosing the right stocks is always important, of course, but it is crucial for cannabis that the sector becomes fashionable.

It's still a young industry, but there is a lot going on in preparation for the mid-October legalization of the recreational pot in Canada. It operates in a context of consolidation, investments and public quotations, and as major players in other sectors.

"Stock selection has been important in this recent transaction," said AltaCorp Capital Research in a report.

"We also think that it is important to stress the importance of the selection of titles during this last gathering, when the rising tide has tended to float all the boats.

The arrival of Constellation Brands Inc. via a huge investment in Canopy Growth Corp. has other major beverage brands that are considering their options and are exploring the possibilities, considering that the pot should have an effect on their business.

The tobacco and pharmaceutical industries should also monitor.

"The choice of high-quality and opportunistic names will continue to be increasingly critical, as companies should start producing results in the coming quarters, with the start of recreational sales next month," said AltaCorp.

"Activities such as [mergers and acquisitions deals] and investment partnerships are other important catalysts for positioning them.

AltaCorp noted that the pot frenzy was led by large cap companies.

"While in the more speculative phases of some markets, small caps should outperform, this most recent development in the cannabis sector has seen large cap stocks outperform significantly over smaller names."

"The average return of large-cap companies has been more than double that of small-cap companies (124% vs. 58%) since August 15th, the start of the last rally at the end of the announcement. from the $ 5 billion investment of Constellation Brands … in Canopy.

Several stocks however fired Thursday.

Speculation that Diageo might be next to a Canadian producer has "added fuel to the rally," raising, for example, the shares of Aphria Inc., Cronos Group Inc., Tilray Inc. and from Aurora Cannabis Inc.

"We also believe that these developments have put the sector at the forefront of a greater number of US investors, who have begun to penetrate primarily through US-listed companies such as Canopy, Tilray and Cronos, "says AltaCorp.

"The increase in volumes in the United States is particularly remarkable compared to the relative increases in much lower volumes on their Canadian lists."

As for the companies themselves, Aphria has "greatly benefited" from the speculation surrounding Diageo. "

Bank of America Merrill Lynch analysts have also noted in a research report how cannabis "integrates", and how large beverage companies are interested.

"We are wondering what business will happen in the future, and we think that Diageo or AB InBev could be the next, given the relevance of North America to them," they said.

"However, we do not exclude other companies that could potentially move into this area. We believe that joint ventures and partnerships could be neutral compared to well-received investors, while a significant cash investment could be challenged, given the emerging profile of the sector and the short-term dilution.

(By joint ventures, they referred to what the term joint ventures are).

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