A New York-based investment bank initiated coverage of the cannabis industry Monday, another sign that Wall Street prudence is catching up to main street excitement over the burgeoning sector.

The global marijuana industry has a “base-case conservative” forecast worth roughly $50 billion in the next decade, Jefferies Group said in its initiating report, and a “realistic upside” size of $130 billion based on wider industry disruption.

Putting that into context, Jefferies estimates the industry is worth $17 billion today.

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Key takeaways from the Jefferies report:

  • Global winners will be those who lead in both medical and recreational and have a strong U.S. position.
  • Fears on commoditization are overdone.
  • Expect to see further consolidation.
  • Near-term focus will shift to performance versus headlines and capacity expectations.

“If any cannabis (company) wants to claim large cap or even mega-cap future status, they need to have a strong position in the U.S.,” Jefferies analyst Owen Bennett wrote in the report.

“Although all coverage names are not currently allowed (to have) U.S. operations while it is federally illegal, they should still be establishing optionality for when/if U.S. regulations change.”

Bennett also said fears over price commoditization are overblown.

“The often-used bear argument on the cannabis space is that weed is just another agri commodity, and therefore all flower will become commoditized,” the report noted. “They also argue price compression will happen within the next 12 months due to oversupply. We have a couple of issues with this.

“First, for premium flower especially, you can’t assume fungibility like any other commodity. Second, perhaps anti-consensual, we don’t see a period of oversupply until mid-2021 at the earliest.”

How will winners be decided in the medical versus recreational sectors?

“The long-term winners in the medical space will be those that are investing in clinical trials, applying for patents and are backed by a strong medical team with experience,” according to the report.

Adult-use winners will have to create brands and value-add products, as well as deliver differentiated experiences.

Jefferies started coverage of nine Canadian marijuana firms:

  • Canopy Growth (NYSE: CGC, TSX: WEED) – Hold
  • Aurora Cannabis (NYSE: ACB, TSX: ACB) – Buy
  • Cronos Group  (Nasdaq: CRON, TSX: CRON) – Underperform
  • Hexo Corp. (NYSE: HEXO, TSX: HEXO) – Underperform
  • The Green Organic Dutchman (TSX: TGOD, OTC: TGODF) – Buy
  • CannTrust Holdings (TSX: TRST) – Buy
  • OrganiGram Holdings (TSX: OGI, OTC: OGRMF) – Buy
  • Emerald Health Therapeutics (TSX: EMH) – Hold
  • Flowr Corp. (TSX: FLWR) – Buy

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