• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Morningstar High on Pot Growth, Sees U.S. Going Legal by 2023

Analysts say nation will turn a new leaf, changing federal law within a few years, as cannabis industry expected to grow big time over next decade.
By DEBRA BORCHARDT
Jul 10, 2019 | 01:19 PM EDT
Stocks quotes in this article: CGC, CURLF, ACB, ACRGF, STZ, MO, CRON, TLRY, SMG

Marijuana will be legal in the U.S. within a few years and the cannabis industry is on track to grow by nine times by 2030. Those were two big takeaways from Morningstar in its coverage on the cannabis industry.

"We size the current global medicinal cannabis market (excluding the U.S. and Canada) at $3.7 billion, while other published estimates range from $3.5 billion to $11 billion. We forecast total market potential of nearly $43 billion by 2030," wrote a team of Morningstar analysts led by Director Kristoffer Inton.

The analysts listed Canopy Growth Corporation  (CGC)  and Curaleaf Holdings  (CURLF)  as their top picks. The team also noted that the most undervalued stocks in their coverage were Canopy Growth, Aurora Cannabis Inc.  (ACB)  and Curaleaf.

Canopy Growth for International Exposure

Canopy Growth could benefit from its exposure to the international medical market, but the analysts warned that while Canada has positioned itself as a top exporter, countries with cheaper outdoor production and lower labor costs will eventually emerge. Canopy is also a potential play on U.S. legalization as a result of the company's deal to acquire Acreage Holdings  (ACRGF)  -- if federal legalization occurs.

Morningstar believes that Corona-maker Constellation Brands' (STZ) recent $4 billion investment in Canopy will benefit the companies from a growing demand for cannabis-infused products like beverages. The analysts calculated that the fair value estimate for Canopy is $54 and the stock was lately trading at $38.85.

Curaleaf as Pure Play U.S.

"Curaleaf provides pure-play exposure to the U.S. market, where we see massive growth for both its recreational and medical-end markets," wrote the analysts.

The U.S. cannabis market is expected to be the largest in the world. Sales are already strong and the product it is still illegal under federal law. Morningstar said full legalization will boost the existing market with improving access to banking, a normalization of taxes and a removal of current restrictions.

The acquisition of Cura Select is cited for strengthening its West Coast footprint and giving the company access to the adult-use market. Curaleaf has operations on both coasts and cultivation in six states. The stock's fair value estimate is $10.50 and the current trading price is $6.94.

Aurora Cannabis to Grow from Low-Cost Production

Morningstar sees Aurora Cannabis (ACB) as a producer that is mostly focused on low-cost production and so far has opted to go forward without a large mainstream partner. While Canopy has joined forces with Constellation Brands and Cronos Group (CRON) has linked arms with tobacco company Altria Group (MO) , Aurora has preferred to remain solo. The company has chosen to become the leader in large-scale, low-cost production described by analysts as "developing the most advanced and automated production in the industry."

Morningstar tempered that enthusiasm by suggesting that such efforts could be easily imitated in the long run. The analysts also noted that ultimately, other countries with better climates and cheaper labor will beat out Aurora's efforts. Still, Aurora could do well with this strategy in the short- and medium-term time frame. The fair-value estimate for Aurora is $9.50 and the stock was lately trading at $7.31

In addition to these companies, Morningstar is also covering Tilray (TLRY) , Cronos Group and Scotts Miracle-Gro  (SMG) . The analysts believe that the "green rush" will continue through the next decade.

At the time of publication, Borchardt had no positions in any securities mentioned.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider several names mentioned to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Borchardt had no positions in any securities mentioned.

TAGS: Investing | Politics | Stocks | Beverages | Tobacco | Cannabis

More from Stocks

You Don't Have to Trade All at Once

James "Rev Shark" DePorre
Sep 23, 2023 10:00 AM EDT

Trading in multiple time frames not only reduces risks, but also provides strategic flexibility. Let me show you what I mean and how to do it.

FS Insight Weekly Roadmap: Market Response to Hawkish Fed Is an Overreaction

Tom Lee and the FSI Team
Sep 23, 2023 9:10 AM EDT

Here's why we believe 'higher for longer DUE to higher GDP' has a more dovish tone, and remain constructive for the rest of the year.

This Dividend Aristocrat Has All the Raw Materials to Make It a Top Pick

Bob Ciura
Sep 23, 2023 7:30 AM EDT

This name has been down, but now I think it's charged up to cruise into the year's end.

The Bears Just Moved Into Wall Street

James "Rev Shark" DePorre
Sep 22, 2023 4:26 PM EDT

Technically, the bears are in control of this market now.

Don't Be a Sap and Step Into a Value Trap

Bret Jensen
Sep 22, 2023 12:30 PM EDT

There are plenty of stocks that look like value plays but aren't as the market continues to drag more share prices down.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:20 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Trading in Multiple Time Frames
  • 10:24 AM EDT BRUCE KAMICH

    This Could Get Messy

    A number of key stocks are getting close to import...
  • 01:41 PM EDT CHRIS VERSACE

    Latest AAP Podcast With Helene Meisler!

    Listen in as the Action Alerts PLUS podcast talks ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login