As mentioned last week, we feel federal cannabis legislation is unlikely to come this year with a more realistic timeframe for legislation being next Summer or Fall when Democrats have a better sense of where they will stand coming out of the mid-term elections. An optimistic outlook will likely lead to more wide-sweeping legislation while a pessimistic view will prompt a push for moderate gains like a stand-alone SAFE Act. As such, the opening of US cannabis stocks to greater institutional investment that is expected to come with legislation and boost valuations across cannabis has to wait. Despite the lack of looming catalyst, we remain bullish even in the short term on cannabis stocks on positive market fundamentals (including populous state markets coming online for rec in ’22 and company execution). In particular, we favor underappreciated operators which have a chance build out sustained leadership positions within core markets. We are confident that execution by these companies will translate to outperforming stock returns and valuation upside even if the broader market stays flat or continues on a downward trend in the short term.
Additionally, consolidation will drive returns in the coming months. As we have previously stated, we believe all but the largest cannabis companies are in play for takeout in the near term and predict that outperforming stocks will include those that make the biggest splash as acquirers and companies that are acquired.
With this note, we highlight our top picks amongst the biggest MSOs and smaller operators that are best positioned for outperforming stock returns through execution on growth initiatives and takeout. We also identify five unfollowed names in the space that can offer outsized returns on greater awareness and continued execution.
Top MSOs: Ascend Wellness Holdings Inc (OTC:AAWH), Ayr Wellness Inc (OTC: AYRWF), Jushi Holdings Inc (OTC: JUSHF) and