Wells Fargo raises four stocks of cannabis
Scotts Miracle-Gro received an "Overweight" rating

Wells Fargo analyst Chris Carey commenced coverage of four cannabis stocks on Thursday, with Scotts Miracle-Gro Co. receiving the most bullish comments, a sign of Wall Street's growing interest in the sector.
Wells Fargo has given Scotts Miracle-Gro SMG, + 2.61%, the fertilizer manufacturer and owner of the Hawthorne line of hydroponic cannabis growing plants, an "Overweight" rating. He reviewed GrowGeneration Corp. GRWG, -3.99% and Hydrofarm Holdings Group Inc. HYFM, -3.00% as equally weighted and Canopy Growth Corp. CGC, -4.36% WEED, -3.78% an underweight.
Carey set a price target of $ 180 on Scotts Miracle-Gro and said the stock is "green" and represents a buying opportunity. The stock is down 30.3% in 2021 while the S&P 500 index is up 22.3%. SPX, 0.39%
“We're seeing an opportunity: a stock that is far from its April highs, at a discount to its competitors and a fundamental opportunity - leaders in lawn / garden and hydroponics - still ahead of us, "wrote Carey in a research note.
While recent volatility in hydroponics remains an "elephant in the room", the US West Coast cannabis market is working on oversupplying what to do hydroponic market turmoil compared to the already record-breaking results from last year, he said.
"Strong operators can benefit from market dislocations and we believe SMG can replay its FY18 playbook to consolidate more stakes (main driver of hydroponics growth)," he wrote.
Unlike its competitors, Scotts Miracle-Gro is also well established in the broader gardening sector and has a strong presence with major retailers such as Home Depot Inc. and Lowe's Cos. Inc. LOW, + 0.58%, he said.
Carey set a price target of $ 18 per share for GrowGeneration, which he called "the leading hydroponic retailer in North America," with sales growth for 2021 more than four times that of 2019. The company is also at a discount valued in the rapidly growing retail sector.
GrowGeneration's stocks are down about 61.8% this year, compared to a 24.5% loss in cannabis ETF THCX, -1.55%.
"The strategy of increasing the number of stores by 60% by the end of 2023, internal initiatives (e-commerce, private labels) and the continued momentum of US cannabis, a key driver of demand in the hydroponics category, make the company attractive "wrote Carey.
Hydrofarm Holdings, a wholesaler, distributor, and manufacturer of hydroponic equipment and supplies in North America, received a target price of $ 33 per share.
Hydrofarm Holdings' shares are down 44.9% in 2021.
"HYFM makes all of its sales and profits from hydroponics, one of the few legal ways to participate in the secular cannabis growth in the US - that's positive in the long run," he wrote. "In times of market volatility such as that currently prevailing West coast of the US, it means that HYFM is exposed. "
Cannabis retailer and maker Canopy Growth Corp. received a target price of $ 8.
Carey said the stock appears "still overvalued" despite its roughly 59% decline this year.
"We believe breaking even sales will be tough in the near future unless federal cannabis laws change and we are below consensus," he wrote.

