Analyst: MSOs Will Close the Gap with Canadian Cannabis Players

- August 21st, 2019

INN spoke with Matthew Pallotta, the analyst tasked with covering the US and MSOs at Echelon Wealth Partners.

A Canadian banking firm has kicked off its coverage of the US cannabis space by selecting its first multi-state operator (MSO) securities to cover.

The US growth seen from investments in the US cannabis market players has led to a flock of investor attention to south of the border. As such, Echelon Wealth Partners has moved forward with the launch of its coverage for this sector.

The financial institution began its analysis of the alluring sector and assigned some targets for a selection of companies.

Using a projection of the average cannabis user rate across the whole country — with the average spending currently seen — Echelon Wealth forecasted the US cannabis market to be worth US$60 billion.

Echelon Wealth assigned positive ratings to Columbia Care (NEO:CCHW,OTCQX:CCHWF), Cresco Labs (CSE:CL,OTCQX:CRLBF) and Green Thumb Industries (GTI) (CSE:GTII,OTCQX:GTBIF) on August 12.

The institution assigned a “buy” recommendation to GTI, while Columbia Care and Cresco Labs each earned a “speculative buy” rating.

The research note designated one-year price ratings of C$24, C$11.50 and C$15 respectively for the MSOs.

Matthew Pallotta, equity research analyst at Echelon Wealth Partners, is the analyst assigned by the firm to cover these companies.Pallotta joined Echelon Wealth in March, but has been covering cannabis stocks for over three years now.

In an exclusive interview with the Investing News Network (INN), Pallotta revealed some of the trends he is seeing in this space.

When asked which markets in the US piqued his interest the most right now, Pallotta highlighted Florida, New York, Nevada and Illinois as the states at the top of his watch list.

Despite the federal illegality of marijuana in the US, the industry has flourished thanks to the opening of markets by way of state-level programs protected from federal prosecution.

A sweeping marijuana legalization effort from the federal powers in the US has been suggested, but doesn’t seem likely anytime soon.

The analyst explained — in his view — how MSOs are trading at a discount compared to the Canadian companies dominating the marijuana stock market.

While many experts agree on the premium seen between Canadian and US names, Pallotta expects to see that gap close down even before the development of crucial policies in the US.

“I think the discount is probably going to close regardless once people start seeing the revenue numbers these businesses are putting up,” Pallotta told INN.

However, despite this prediction, Pallotta is anticipating the passing of bills — such as the STATES Act — will represent the boom for MSOs. The STATES Act is a proposed federal bill that would permit the states to decide how to openly operate cannabis programs throughout the country.

When it comes to the disparity between US-based cannabis MSOs and the Canadian leaders, which have seen an early lead to senior US exchanges — something still unavailable to MSOs due to the federal illegality of the drug — Pallotta said the business fundamentals of MSOs is strong enough to help close the difference.

Despite these projections, Pallotta is not discounting the Canadian names known to marijuana investors due to the support thrown to Canadian companies by institutional investors looking for legal marijuana exposure.

“There’s institutional money that, because of those rules and whether they like the US players or not, won’t be able to go in,” he said.

The interest in MSOs has risen enough in 2019 to justify the launch of two exchange-traded funds (ETFs) in Canada dedicated entirely to the US cannabis space.

“Clearly we are moving now in a period where there was a lot of focus on US marijuana firms,” Jos Schmitt, president and CEO of the Toronto-based NEO Exchange, told INN. “There’s a lot of interest in that space.”

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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