Last year, Wall Street was pretty much unstoppable. The S&P 500 underwent only one small correction and went on its way toward a 27% gain. It continued what is been the strongest return from a bear-market bottom ever.

Yet even with this bounce, Wall Street still sees huge upside in marijuana stocks. Cannabis-focused analytics company BDSA predicts that legal weed sales could double from an estimated $31 billion in 2021 to reach $62.1 billion by 2026. That is a lot of green that will be fueled by growth in North America, especially for these two stocks:

Aurora Cannabis

Among pot stocks on major exchanges, Aurora Cannabis looks to give good return potential. Analyst Pablo Zuanic from Cantor Fitzgerald thinks that Aurora could go up to $10.75 Canadian (which is $8.50 U.S.) per share, which would represent an upside of 46% over the next year.

Unfortunately, Aurora’s past management team could have overestimated the increase of recreational pot in Canada and the rollout of medical cannabis out of its domestic market. In reply, the company has closed some of its smaller facilities, halted construction on others, and even got rid of assets, to remove its expenses. Zuanic’s price target usually takes into account the expectation of less costs, modestly greater sales, and less cash outflow.

But even CA$10.75 per share could be asking too much for a company that has reduced its cash outflows but keeps burning through its capital and losing money on a routine basis. As the Canadian adult-useless market has gotten better, consumers have gravitated toward lower-margin cheaper brands, which is also not doing Aurora Cannabis any favors.

Sundial Growers

Another very popular pot stock that might see huge gains in 2022, at least if Wall Street is right, is Sundial Growers. Zuanic at Cantor Fitzgerald has the top price target on Sundial ($1.15). If this prognostication is right, shares of the firm could almost double in 2022.

The attraction of Sundial continues to be the company’s huge cash position. Taking into account completed and pending purchases, the company had $571 million in unrestricted cash and no debt as of November 9, 2021. Only a couple of cannabis firms have a larger cash pile than Sundial.

While there is no denying that Sundial’s cash is good, how the company raised the money is a major issue. Since September 30, 2020, Sundial has given around 1.6 billion shares of stock through registered offerings and at-the-market sales. With around 2.1 billion shares now outstanding, Sundial’s chance of getting meaningful earnings per share is almost zero.

Author: Scott Dowdy

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