Cannabis Watch: Aphria leads cannabis stocks higher after Jefferies starts coverage with a buy rating

Aphria Inc. shares soared about 9% Friday to lead the cannabis sector, after Jefferies started coverage of the stock with a buy rating. Read More...

Aphria Inc. shares soared about 9% Friday to lead the cannabis sector, after Jefferies started coverage of the stock with a buy rating.

Analysts Owen Bennett assigned Aphria APHA, +9.20% APHA, +8.35% a C$15 ($11) price target that is 115% above its current trading level, highlighting the disconnect between the valuation and the company’s strategic positioning.

“On our strategic scorecard Aphria scores highly, and third overall behind only Canopy and Aurora,” Bennett wrote in a note to clients. “Despite its strong global outlook, its valuation is the cheapest across our space, with allegations around inflated assets/insider deals weighing.”

Aphria has weathered a scandal surrounding its acquisition last year of Latam Holdings Inc., after short sellers said the deal was overpriced and that insiders were undisclosed beneficiaries. The company formed a special committee to investigate those allegations and concluded that there were conflicts of interest for some board members.

The company pledged to improve corporate governance and add independent directors to its board. It also transitioned former Chief Executive Vic Neufeld and co-Founder Cole Cacciavillani out of the board roles while keeping them as advisers.

“With these issues now seemingly cleared up, as the company continues to execute, and with likely positive developments on US optionality/Canadian derivatives, we see significant re-rating,” Bennett wrote. The analyst is expecting the company to take a similar action in the U.S. to one taken in Germany, where it has acquired non-cannabis assets that can be leveraged at a later date.

“In Canadian derivatives we think there’s a good possibility of a vapor partnership with Pax,” he wrote.

Canopy Growth Corp. shares CGC, -0.40% WEED, -0.62% were flat Friday, ahead of a June vote on its proposal to acquire Acreage Holdings Inc. once cannabis is legalized in the U.S. The deal has its roots amid bunk beds inside a small, cramped house in Klosters, Switzerland, as MarketWatch’s Max A. Cherney reported. It was there that Canopy co-CEO Bruce Linton and Acreage CEO Kevin Murphy laid the groundwork for the $3.4 billion deal.

In regulatory news, New Jersey lawmakers on Thursday approved a bill that would expand the state’s medical cannabis program. The Garden State has approved just 12 dispensary licences so far, as Marijuana Business Daily reported. The assembly approved a bill that moves to the Senate for a vote on May 30. The move comes after lawmakers were forced to abandon an effort to legalize cannabis for recreational use after they were unable to agree on rules. Gov. Phil Murphy is planning to add recreational cannabis to the 2020 ballot.

KushCo Holdings shares KSHB, +2.70% rose 2.3%, after Canaccord reiterated its speculative buy rating on the stock after meeting with the company. KushCo told analysts it is passing on the impact of the latest tariffs on goods from China to its customers, who will pay more for its vape hardware.

“Meanwhile, vape hardware demand continues unabated, evidenced by recent POS data from BDS Analytics showing vape’s increasing share of retail sales in rec markets, somewhat to the detriment of flower sales,” they wrote in a note to clients. “As such, we believe KSHB’s revenue mix from vape hardware is likely to remain elevated.”

Flowr Corp. shares FLWR, +7.62% soared 9.5%, after the company said it has received approval to list on Nasdaq at a later date. Zenabis Global Ltd. ZENA, +3.85% shares rose 5% on their first day of trading on the Toronto Stock Exchange. The Vancouver-based company is aiming for annual capacity of 478,900 kg once its facilities have been built out.

Elsewhere in the sector, Tilray Inc. shares TLRY, -0.67% fell 1%, Aurora Cannabis Inc. ACB, +0.63% ACB, +0.63% was up 0.7% and Cronos Group Inc. CRON, +1.70% CRON, +1.84% was up 1.5%. Hexo Corp. HEXO, +1.58% was up 2.1%.