Cannabis rally braked by Tilray downgrade, allowing investors to lock in recent gains

Cannabis stocks were mostly lower Thursday, taking a breather from their recent rally after a downgrade of Tilray Inc. following the stock’s sharp gains.

Northland Capital markets downgraded the Canadian company that is the first full-service weed stock to list on Nasdaq to market perform from outperform and withdrew its stock price target of $60, which was based on expected 2021 revenues of $492 million.

“Valuation is complex for Tilray and one needs to fully appreciate the pendulum swinging towards medicinal and recreational use of cannabis globally,” analyst Mike Grondahl wrote in a note.

Grondahl said he loves the company and is confident it will be a big player in the growing cannabis market, and specifically, in the Canadian recreational market, once it launches on Oct. 17.

“We have highlighted many positive attributes for Tilray including Privateer Holdings and Leafly, its partnership with Novartis/Sandoz and distribution deals with Shoppers Drug Mart, Pharmasave and others in the pharmacy space and 7 Canadian provinces,” said the analyst. “However, with the recent (massive) move in the stock, we believe the risk/reward is far more balanced at this time.”

Tilray shares TLRY, -8.82%  slid 11% in early trade, while fellow Canadian weed stock Cronos Group Inc. CRON, -6.59% was down 9% and Canopy Growth Corp. was down 5.2%. Aurora Cannabis Inc. ACB, -5.41%  was down 6%.

Thursday’s slide barely put a dent in the stocks’ longer-term gains, however. Tilray, which went public in July, has gained 216% in the last month. Cronos is up 93% in the same time frame and Canopy Growth is up 85%. Aurora is the exception, falling 7% on the month, although it has climbed 230% in the last 12 months.

Bucking the negative trend Thursday was Valens GroWorks Corp. MYMSF, +13.71% which gained 21% in early trade, adding to gains of about 60% chalked up Wednesday. The stock rallied sharply after Mackie Research initiated coverage with a buy rating and $4.50 price target. Valens is focused on producing and selling high-margin products using a proprietary extraction process, which Mackie analysts Greg McLeish and Nicola McFadden said sets it apart from rivals.

U.S. cannabis stocks were lower across the board.

Nevada-based Cannabis Sativa Inc. CBDS, -4.19% was down 4%, while shares of Colorado-based farmer GrowGeneration Corp. GRWG, -3.88% fell 3%. Ianthus Capital Holdings Inc. ITHUF, -3.00% which owns cannabis cultivators, processors and dispensaries across the U.S., was down 3%.

The Horizons Marijuana Life Sciences Index ETF HMMJ, -2.22% which tracks more than 20 cannabis companies in North America and trades on the Toronto Stock Exchange, was down 3%. The S&P 500 SPX, -0.53%  was up 0.1%, and the Dow Jones Industrial Average DJIA, -0.01% was up 0.3%.