Cowen and Company joins the ranks of the few mainstream research firms to officially begin covering the cannabis industry. A comprehensive 100 plus page report with contributions from ten different analysts was issued by Cowen Washington Research Group on September 12.
The Cowen group is forecasting that the marijuana market will grow to $50 billion by 2026 from $6 billion today. They believe that there will be a huge transition of black market sales to the legal market as more states legalize marijuana and that more people may engage in marijuana use as it becomes more acceptable and legal.
However, when institutional, mainstream corporate companies dabble in marijuana, they do tend to show their naivete about the industry. The inclusion of Jack in the Box as a suggested stock to benefit from marijuana was flat out ridiculous and insulting to the marijuana community. While empty shelves of Doritos made the news when marijuana was first legalized in Colorado, most users can buy strains without hunger effects.
“That Jack in the Box thing was stupid,” said Alan Brochstein, Founder of420 Investors. He did add, “The value of the report is for institutional investors that can’t really invest in marijuana. It’s good to be aware of what’s happening. Like it can be good for tobacco and bad for alcohol.”
Surprisingly, analyst Vivien Azer recommended a fairly small stock in the space. This is pretty unusual as large investment firms tend to avoid small stocks. The reason is that when an established firm speaks favorably of a stock, no matter the size, there is a bump in buying activity and when the stock is small it can create volatility because of liquidity issues.
Azer believes that Kush Bottles Inc. is the best opportunity in the consumer staples space to capitalize on the cannabis industry. Kush is a distributor and manufacturer of packaging solutions for the cannabis industry. She initiated coverage with an outperform rating and a $3 target.
“I’m not sure why they called out Kush. I like Kush, but $3 is ridiculous. It’s not defensible,” said Brochstein. The stock was lately trading at $2.13.