Pot Sector Is Real and There's Money to Be Made, Scotiabank Says

(Bloomberg) -- The pot industry “is real, it is here to stay and we believe there is money to be made,” Scotiabank analysts Oliver Rowe and Ben Isaacson write in a note.

Investors in marijuana should shift their focus from grams of weed sold as a product to cannabis sold as an ingredient, according to the analysts. They compare the sector to the chocolate industry, where investors are more focused on sales, margins and market share of top companies, rather than producers in a specific country or region. When selecting stocks in this sector, investors will need to assess the quality of management, funding and strategic relationships they have in place, they say.

Aphria Inc. is the best way to play the sector, according to the analysts, who initiated coverage of the stock with a sector outperform rating. Their 12-month price target of C$25 implies 34 percent upside to the last close. Scotiabank began coverage of Canopy Growth Corp. at sector perform and a price target of C$61 per share, viewing the stock as fully valued.

Aphria had eight buy ratings and one sell, with a 12-month average price target of C$26, before Scotiabank’s initiation. Canopy Growth had nine buys, one hold, one sell and an average price target of C$64, according to Bloomberg data.

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