Jefferies is the latest Wall Street firm to initiate coverage in the cannabis space – but unlike many of its more bullish peers, its base-case outlook on the nascent industry is much more subdued. Jefferies Group LLC is an American multinational independent investment bank and financial services company that is headquartered in New York City. The firm provides clients with capital markets and financial advisory services, institutional brokerage, securities research, and asset management.
Jefferies launched coverage of the cannabis business Monday with a note from analyst Owen Bennett, who initiated ratings on nine companies while estimating that the legal-weed industry will reach $50 billion in annual sales over the next decade vs. just $17 billion this year.
Bennett also said a “realistic” bullish case could see the industry enjoy as much as $130 billion in sales by 2029 thanks to pot’s disruptive nature.
What is the Industry saying…
“We see a base-case conservative industry size of over $50 billion by 2029 and a realistic upside size of $130 billion on wider industry disruption,” he wrote. “Global winners to be those that lead in both medical and recreational and have a strong U.S. position. Fears on commoditization are overdone. Expect to see further consolidation, more [mainstream consumer-goods companies] taking positions and near-term focus shifting to performance vs. headlines/capacity expectations.”
Cowen initiated coverage on the industry in 2016, and now forecasts cannabis sales in the U.S. alone to reach $80 billion by 2030 under the assumption of full federal legalization. Piper Jaffray, which initiated cannabis coverage in January, believes there is currently a $15 billion to $50 billion total addressable market between Canada’s fully legalized market, medical usage in the European Union and patchwork of U.S. legalization. The firm also projected a $250 billion to $500 billion total market “longer-term if cannabis were legal globally.”
But capturing the U.S. market will be pivotal for any company that “wants to claim large-cap or even mega-cap future status,” Bennett said.
“Although all coverage names are not currently allowed U.S. operations while it is federally illegal, they should still be establishing optionality for when/if U.S. regulations change,” he added.
The U.S. is the largest global cannabis market, and a recent report from cannabis research institution BDS Analytics projected that about 70% of the global cannabis spending would derive from the U.S. in the next three years.
H/T: Yahoo Finance