Ruth Saldanha: As the markets and investors continue to digest the events surrounding the U.S. presidential election, one victor emerged right on election night, cannabis. Every cannabis ballot measure was approved as Arizona, Montana and New Jersey expanded legalization to recreational cannabis, Mississippi legalized medical cannabis and South Dakota shockingly approved both medical and recreational cannabis in one day. This is great news for the sector and also confirms Morningstar analyst Kristoffer Inton's long-term view for the industry. He's here today to talk about it. Kris, thank you so much for being here today.
Kristoffer Inton: Thanks for having me.
Saldanha: First up, what do these referendums mean for cannabis investors, especially those who have been disheartened by the lackluster performance earlier this year?
Inton: Well, I'd first point out the difference in performance between the Canadian and American cannabis stocks. Year-to-date, American cannabis stocks have been performing very well with some of the stocks even doubling. Canadian stocks have been struggling, particularly those where funding has been more of a concern like Aurora and Tilray. For American stocks, these referendums mean more growth to come as legal markets continue to expand. For Canadian stocks, for the most part, it means nothing, since U.S. Federal Probation prevents companies from participating in THC markets in both countries. Canopy is the exception there, given an agreement to acquire U.S. multistate operator Acreage Holdings upon a change in federal law.
Saldanha: Is this the beginning of the 10x growth that you had forecast some years ago?
Inton: I want to say the beginning, but the continuation. I think that what we're seeing is the continued opening of more and more new markets in the U.S. New Jersey in particular, I think, is going to be a catalyst for more recreational legalization, especially in the Northeast. Neighbor states like New York aren't going to want to be left behind. So, we expect New Jersey's legalization to catalyze even more.
Saldanha: Some of the cannabis stocks have run up since election night. Has the news already been priced into the stocks?
Inton: Yeah. I'd point out again that the differences between the American and Canadian markets so far, most of the Canadian producers don't have that THC cannabis exposure to the U.S. They have hemp-derived CBD or even alcohol exposure. So, more THC legalization in the U.S. doesn't actually help them directly, but the stocks actually ran up anyway. So, what I think we're seeing is optimism for even further legalization to starting to be priced in all the stocks.
Saldanha: So, at this point, what is your top cannabis pick and why?
Inton: For U.S. exposure amongst our coverage Curaleaf and Green Thumb give the most direct exposure. But those stocks have done so well this year, we see both of them in 3-Star territory. Canadian producer Canopy still looks undervalued and they have that deal I mentioned that will give them investment exposure to the U.S. The most undervalued name in our coverage is Aphria, which doesn't have U.S. exposure. But the stock has struggled a lot this year. But it's the only Canadian producer we cover that's already even that profitable, and it does give investors exposure to the still growing Canadian and international medical markets.
Saldanha: Thank you so much for joining us today with your perspectives, Kris.
Inton: Thank you.
Saldanha: For Morningstar, I'm Ruth Saldanha.
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