This week, Piper Jaffray, a Minneapolis-based investment bank and M&A adviser, threw itself into the cannabis space. Itâ€™s rare territory, still, for Wall Street stalwarts; Piper Jaffrayâ€™s entrance joins an array of clear signals around the marketplace in the past 12 months that cannabis, U.S. legal status notwithstanding, is gaining legitimacy in the eyes of investors.
That means more demand for cannabis analysis, which means more money moving into the market.
â€śWe do believe the long-term growth opportunities are significantâ€”both from transitioning illicit trade to legal sales, medical sales, and from transitioning sales in health & wellness categories to CBD-infused products,â€ť analyst Michael Lavery told CNBC Jan. 8, when the firm began its coverage of legal cannabis producers. â€śWhile timing of further changes is difficult to predict, the pace of further legalization appears to be accelerating.â€ťÂ
Piper Jaffray first set â€śoverweightâ€ť ratings for Canopy Growth Corp. and Tilray, two of the large-scale Canadian LPs. An overweight rating from a firm like Piper means that the stock is being sold on the market for a better value than others. (Underweight stocks are deemed susceptible to underperformance, and might indicate a need to sell.)
Since the news from Piper, Canopy shares spent two days, Jan. 8 and 9, rising in price on the New York Stock Exchange, from $28.45 to $33.60. Tilray shares clocked a net gain on the Nasdaq from $73.39 to $79.79.
In August, Canopy made international headlines by drawing a $3.8-billion (C$5-billion) investment from Constellation Brands, the maker of Corona beer. The news, which was followed in short order by a bevy of massive international investments between other consumer packaged goods companies and cannabis producers (including Altriaâ€™s $1.8-billion stake in Cronos Group), was another example of the marketplace taking matters into its own hands and preemptively lining up business opportunities ahead of U.S. legalization.Â
Lavery told CNBC this week that itâ€™s this sense of normalizationâ€”as CPG corporations begin to make moves and as infused beverage technology begins to attract consumer interestâ€”that has firms like his own confident enough to enter the space. â€śWe expect legal recreational marijuana to source from illicit trade and could attract new users to the category, while THC-infused drinks could source share from alcoholic beverages,â€ť he told the network. â€śMedical cannabis can replace a variety of products (e.g. pain relief, sleep aid, opioid replacement). CBD-infused products (with non-psychoactive properties) could gain share from food, beverage, and personal care categories.â€ťÂ
The analyst also called out Canopyâ€™s recent acquisition of hemp research firm ebbu, which has brought a suite of R&D advancements to the Canadian company.
Squaring the matter and echoing sentiments made by Canopy Growth executives in recent months, Lavery told CNBC that â€śCanopy believes it can formulate both a THC-infused beverage that can substitute for alcoholic drinks and a CBD-infused sports recovery beverage that will ultimately compete with Gatorade,â€ť Lavery said. â€śCanopyâ€™s partnership with Constellation Brands gives it a competitive advantage in beverages, and it has already begun construction on a new bottling facility at its headquarters, which it designed with Constellationâ€™s expertise.â€ťÂ
As capital markets adviser Dan Nicholls, of the MGO | ELLO Cannabis Alliance, told us in the inaugural edition of M&A Weekly, â€śI think  will be probably a big year to see a lot of existing investment banks move into the space.â€ťÂ
Piper Jaffray may not be executing M&A transactions in the cannabis market right now, but the foray into stock coverage is significant.