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Merrill Lynch launches cannabis sector coverage, assuming US legalization



Bank of America Merrill Lynch reinforced its interest in the cannabis industry by starting to cover the growing sector, less than a year after it funded the Constellation's multi-billion dollar investment in Canopy Growth in Canada.

The report, by analyst Chris Carey, predicts that two events could lead to a paradigm shift:

  • Canada reached overtime for marijuana in 2021
    , which would lead to lower prices and accelerate consolidation.
  • US legalization.

"Important, if legalization occurs or not, we believe the legalization statement, an event that can lift US real estate prices, calls for Canadian companies to accelerate US strategies and see some announce US deals before legalization" the report stated.

The prescient call was made the day before Canopy Growth struck a landmark agreement to buy New York-based shares for $ 3.4 billion – pending US legalization.

Canadian companies on the Toronto stock exchange can reach the United States via ownership structures that will not become active until the US federal law changes.

If the United States were to legalize medical cannabis federally, the high valuations of "Only 19009002] justified the international strategy now critically

The report said the overall market share of the 14 largest Canadian cultivators could exceed the domestic market consumption by mid-2021, and international strategies are now critical as the Canadian market is small in relation to global opportunities.

"There are over 50 concerted Canadian cannabis licensed producers, too many for one cannabis market, the size of Canada's, in our opinion, "according to the report.

Bank of America Merrill Lynch, based in Charlotte, North Carolina, estimates that a global $ 166 billion industry comes from the shadows"

Europe Includes 25 %, with Asia (21%), Africa (9%), Latin America (6%) and Oceania (2%), while the US accounts for 34% of the total addressable global cannabis market. . Total addressable market includes regulated and illegal markets.

Canada accounts for only 3% of that market, the key driver for companies that see it internationally for growth.

"We expect the illegal market to lose its share in the legal market in North America, but the rest of the world will remain dominated by an illegal market," Carey wrote.

The potential disturbance could have even greater upside.

"We estimate consumer categories that generate $ 2.6 trillion a year in revenue can be disturbed by cannabis, from health / wellness to alcohol," the report reported.

Global Developments

The report called the US Food and Drug Administration approval of Epidiolex "an important step" in medical cannabis legalization.

"Another critical development for the medical cannabis sector is taking place globally," Carey wrote.

He cited the January decision of the World Health Organization to recommend the cannabis conversion, remove it from Schedule IV in the 1961 Convention on Drug Control and move it to a much less restrictive category.

A third critical development, mentioned Carey, came in February when the European Parliament asked for a uniform definition of medical cannabis.

Bank of America Merrill Lynch started covering the industry leaders Aurora Cannabis, Canopy Growth, Cronos Group, Green Organic Dutchman, Hexo Corp and Supreme Cannabis.

Matt Lamers can be reached at [email protected]

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