On December 14th, Canaccord Genuity released their top picks going into 2022, with names like TELUS (TSX: T), Bank of Montreal (TSX: BMO), Artemis Gold (TSXV: ARTG), SSR Mining (TSX: SSRM), Ayr Wellness (CSE: AYR), and Trulieve Cannabis (CSE: TRUL) made the list. For the macro commentary, Canaccord believes that inflation will moderate as the supply chain disruptions ease in the first half of 2022 before reaccelerating in the second half of the year.
They also expect that the interest rates and earnings “should lead to a choppier environment for stocks in 2022.” They note that equity risk premiums have “melted away” in many areas of the market currently and their earning models are now being impacted by rising input and wage costs. Because of this, they believe that there will be a large rotation into small, mid or value stocks where equity risk premiums would still be reasonable.
For Canaccord’s first cannabis top pick, Ayr Wellness, they have a C$62 12-month price target and buy rating, saying that the company has had a solid 2021 in terms of execution and integrating the many acquisitions the company conducted.
Canaccord continues to believe that the sector, and more specifically, AYR Wellness, has a number of positive regulatory tailwinds. With the sector down roughly 25% year to date and AYR down 39%, they believe that investors could benefit from a potential sector rerating and a rerating inside its peer group.
Canaccord says that the company looks very attractive compared to its peer group as it trades at roughly 5x 2022 estimated EV/EBITDA, while the broad MSO average sits at roughly 8x 2022 estimated EV/EBITDA. They write, “With strong execution since coming to market and a portfolio of assets set to see sizable growth in 2022, we believe AYR.A is due for a valuation re-rating and would continue being buyers at current levels.”
Canaccord’s other cannabis top pick is Trulieve, for which they have a C$97 12-month price target and buy rating, saying that the company is positioned for healthy growth ahead as the company has just closed its Harvest acquisition.
They say that the company continues to be the profitability leader in the sector thanks to its dominant position in Florida, although Canaccord says that the companies entrance into new states such as Pennsylvania and Arizona will likely lead to lower margins for the company.
Lastly, they say that the company is leaving 2021 and heading into 2022 as a “bigger and better MSO” following its acquisition of Harvest. Trulieve now commands a leading market share in Arizona and Pennsylvania which are highly attractive markets. Canaccord expects some tuck-in acquisitions in 2022 so that Trulieve can get deeper into their current footprint.
Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.