- Top Democratic senators released a draft of a sweeping cannabis reform bill on Wednesday.
- Cantor Fitzgerald laid out four top US cannabis stock picks.
- The stocks have recently pulled back, creating a buying opportunity.
A top Wall Street analyst said the recent pullback in US cannabis stocks creates a prime buying opportunity and laid out his top four picks.
Senate Majority Leader Chuck Schumer and two other powerful Democrats on Wednesday launched a longshot bid to legalize cannabis federally — and cannabis stocks, perhaps predictably, fell.
In a Thursday morning note, Cantor Fitzgerald analyst Pablo Zuanic called Wednesday a “historic” day for the cannabis industry and said investors should “make use of yesterday’s weakness.”
“For the first time, a US Senate Majority Leader proposed broad MJ reform,” Zuanic said.
MSOS, an exchange-traded fund of major US cannabis stocks, fell 3.5% on Wednesday while the S&P 500 was about flat.
Zuanic reiterated that his top picks in the US cannabis sector are Curaleaf, Green Thumb Industries, Trulieve, and Cresco Labs.
He said investors should avoid financially stretched companies “lacking state-level depth,” those more focused on “complaining about their valuations” than running their business, and companies that are indebted to “predatory” lenders.
“Again, make use of Wednesday’s weakness – selectively, in our view,” Zuanic said. He added that some Canadian cannabis companies could benefit as well.
To be sure, Schumer said in a Wednesday press conference that his draft bill does not have enough votes to pass the 60-vote filibuster threshold in the Senate. President Joe Biden doesn’t support marijuana legalization, presenting another obstacle.
Plus, Sen. Cory Booker said he’s opposed to pursuing narrower reforms, such as allowing cannabis companies to access banks, ahead of broader legalization.
Despite the hurdles in passing legalization, other analysts reiterated that the underlying thesis of cannabis legalization is worth investing in.
In a Wednesday report, analysts from JMP Securities said the recent pullback in US cannabis stocks from February’s high is an “attractive long term entry point.”
“[W]e view the valuation reset and the consolidation of gains as healthy, but at the same time, creating an attractive longer-term entry point,” the analysts said.