Marijuana market to reach $50 billion in decade: Cowen

Published Fri, Sep 16 20165:00 AM EDTUpdated Sat, Oct 14 201710:44 AM EDT

Not one to ever miss out on a growth opportunity, Wall Street is increasingly advising clients to invest in the booming legalized marijuana market. Last month, JPMorgan told investors to buy fertilizer maker Scotts Miracle-Gro because of it. Now comes a 110-page opus from the research team at investment bank Cowen called "The Cannabis Compendium: Cross-Sector Views on a Budding Industry" which contains a list of the firm's favorite stock ideas from across the many industries that could stand to benefit from increased legal pot use and production. "Cannabis prohibition has been in place for 80+ years, but the tides are clearly turning. Potential product applications range from recreational, to health and wellness, to therapeutic, to pharmaceutical," Cowen's team wrote in a note to clients. "With more cannabis dispensaries in CO than Starbucks, assuming full legalization, we estimate there could be as many as ~17,000 legal cannabis retailers in the U.S., upon full legalization." The analysts' study shows more than 32 million Americans admit to marijuana use with 8 million using it on a daily basis. Moreover, Cowen sees an 80 percent chance California will approve recreational cannabis use, which will triple the legal marijuana market if it happens. As the drug becomes more accepted, the firm estimates the legal cannabis market will grow to $50 billion by 2026 versus the $6 billion today. The expanding market will also help other industries such as fast food restaurants, according Cowen. "We believe QSRs [quick-service restaurants] are poised to benefit from increased spending on recreational marijuana as one side effect of THC consumption is increased hunger," the report said. "Within quick-service, we note Jack in the Box has the greatest exposure to recreational marijuana use becoming more widely accepted in states that have already legalized use (10 percent of the store base), as well as five states with an upcoming legalized recreational use proposal on state ballots for the November election (52 percent of the store base)." Cowen has an outperform rating on Jack in the Box with a $115 price target, representing 16 percent upside from Thursday's close. In addition, Cowen presented its top-two outperform-rated stocks that will ride the pot market trend more directly. Cowen's GW Pharmaceuticals price target is $135, representing 28 percent upside from Thursday's close. "GW has developed one of the most sophisticated platforms in the world for producing cannabinoid-based pharmaceuticals. GW has a state-of-the-art facility north of London where it selectively breeds specialized cannabis plants, or chemotypes." Cowen's Kush Bottles price target is $3.00, representing 43 percent upside from Thursday's close. "In the near term, we believe KSHB represents the best opportunity to capitalize on the growing cannabis industry, via the company's distribution and manufacturing of packaging solutions for legal cannabis enterprises ... the company looks set to double its revenues for the second consecutive year (to ~$8 mm), and represents an immediate opportunity to invest in the emerging cannabis sector." Editor's Note : The market cap of Kush Bottles is approximately $100 million and inherently riskier due to its small