AGP downgrades, lowers price targets on select cannabis companies

A lackluster 2024 for the cannabis industry led Alliance Global Partners cannabis analyst Aaron Grey to make changes to some of the cannabis companies under his coverage – including a downgrade and lower price targets.

“Sentiment within cannabis is low after a lack of progress on federal reform in 2024 (and Biden’s broader term), Florida failing to pass its adult-use measure and uncertainty around the prospects for cannabis within the upcoming Trump administration,” Grey wrote in his 2025 Outlook report issued this week. He said that broader movements in cannabis stocks would be tied to federal reform – and that depends on the new administration.

He also expects the industry to experience more modest growth in 2025, given a lack of meaningful state catalysts, with operators continuing to focus on margins and cash flow, along with the balance sheets.

Grey called Green Thumb Industries (OTC: GTBIF) best-in-class based on the company’s healthy balance sheet. He wrote that the company’s debt refinancing, robust operating cash flow generation ($152 million operating cash flow, as of the end of 2024’s third quarter) and strong margins allow the company meaningful optionality to maximize shareholder value via M&A, CAPEX or share repurchases  through a $50 million program already in place.

Changes to coverage

On the not-so-positive side, Grey downgraded The Cannabist Co. (NEO: CBST) to neutral and removed a price target for the stock. He noted that the company remains in its turnaround period following the  cancellation of its merger with Cresco. He added that with the uncertainty around catalysts (state or federal) and upcoming debt maturities, he was moving to the sidelines for following the company.

Grey kept his buy rating on Trulieve Cannabis Corp. (OTC: TCNNF), but noted that it remains a Florida-centric story. However, the failure of the Florida adult-use ballot measure does thwarted the catalyst many had hoped for. He lowered the price target on the stock from C$23 to C$19 ($15 to $13). It currently trades at roughly C$7 ($4.87).

Verano Holdings (OTC: VRNOF) also has a buy rating, as the company generates industry-leading EBITDA margins and operating cash flow. However, Grey cut the price target from C$7 to C$6 ($4.86 to $4.16).

“The company has a healthy balance sheet and is still paying its 280E taxes (meaning an uncertain tax liability is not building), and we anticipate VRNO will be well positioned to refinance its 2026 debt maturities, even within the current environment. This position of relative strength could even allow for the company to prudently expand in 2025,” he wrote.

Village Farms International (NASDAQ: VFF) also kept its buy rating, but the price target was lowered to $1.75 from $2.25. The stock was lately selling at roughly $0.73.

“Given its low-cost operations, profitability and international upside, along with Organigram (NASDAQ: OGI) as the company is now the market leader following its Motif acquisition and has consistently outperformed the industry,” the analyst wrote.

Grey said sentiment in the space was ending the year at a low, particularly from a public stock perspective, with current EBITDA valuations for the year ahead at a 2.5-year low.