CIBC: Marijuana legalization a ‘global trend that is merely getting started’

Canadian cannabis businesses would be among the first to capitalize if any other major country takes a meaningful step toward legalization, according to a new report from CIBC World Markets, a subsidiary of the Canadian Imperial Bank of Commerce.

“The movement towards legalization is a global trend that is merely getting started, and there likely are far greater uses for the plant beyond adults choosing to consume the product for leisure,” analyst John Zamparo wrote in the report for the bank’s institutional clients.

“We truly believe we are only in the early stages of what will be a global shift on this subject, and could be witnessing a transfer of wealth – from illicit to legitimate markets – that is a rarity in history,” according to the bank’s note to clients, which accompanies the report.

The report was issued before cannabis stocks took a nosedive this week.

The Canadian Marijuana Index – a basket of stocks representing the cannabis sector – has plunged more than 20%, erasing all of its gains so far this year.

The CIBC noted that Constellation’s investment of 5 billion Canadian dollars ($3.8 billion) in Canopy Growth provided a boost to all cannabis companies, “rather than just the ones who are most likely to succeed.”

“We now believe that the overall sector is likely overvalued, but that there are individual names that are reasonable from a valuation perspective,” the report’s author wrote.

Canopy Rivers – the focus of the report – is highlighted as one of the companies offering a reasonable valuation, with “significant earnings upside … entirely possible” and the possibility of a “significant development” in the medical field.

“Imagine if the (roughly) $80 billion sleep aid market is wholly disrupted by a line of cannabis-based softgels, or if a similarly sized pain relief market realized that healthier, safer alternatives to the status quo exist in the form of cannabinoid-based treatments.

“The questions become: How likely is that earnings upside to occur, when might it happen, and what premium are investors willing to pay?”

The report was released as CIBC – one of the largest banks in Canada – initiated coverage of Toronto-based Canopy Rivers, a subsidiary of Canopy Growth.

Rivers’ shares trade on the TSX Venture Exchange under the symbol RIV.

Matt Lamers can be reached at [email protected]

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2 comments on “CIBC: Marijuana legalization a ‘global trend that is merely getting started’
  1. Richard Scalia on

    Can someone please explain why all of a sudden there is all this negative press about the biggest thing since prohibition??? Aren’t most stocks over-rated in any sector? Cannabis and Hemp have been around (and used regularly in many ways) for thousands of years. Heck, the early $10 dollar bill had a picture of Farmers hauling up bundles of the stuff right on good ole American soil.
    How dare a government, (THese United States of America) that accepted the cultivation, sale and taxation of this industrious plant, in the past, Forbid the acceptance of it now. Especially at a time when the entire world stands to benefit, not only medically, but in many ways, from all of the miraculous properties these plants have to offer!! Three cheers for my Brothers and Sisters from north of the border (Canada) and SHAME on us In the good ole U.S.A. I love this country, but things just don’t get done around here, unless some corrupt Politician isn’t getting their pockets stuffed with cash… America, Take a lesson in Economics if nothing else. WEED=PROSPERITY.

    Reply
  2. Maxcatski on

    Pot stocks took a nosedive this week? Is the bubble set to burst? Get ready to sell on the dead cat bounce. Or not. But these stocks are volatile. I see Aurora went up 100% on the NYSE today – then back down the same amount.

    That’s volatile.

    Reply

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