Another Wall Street firm has initiated coverage of the cannabis space, with Jefferies Financial now launching coverage of nine companies but with perhaps a more muted outlook than seen from other analysts. While projecting growth for the overall industry to reach $30 billion by 2022 and $50 billion by 2029, Jefferies gave Buy ratings to five stocks including Aurora Cannabis and CannTrust but also put two in the Hold category and listed two as Underperform. (All figures in US dollars.)

On the whole, Jefferies analyst Owen Bennett’s 250-page industry report is positive on pot, arguing against the claim that cannabis will sooner or later become nothing more than a commodity with razor thin margins and instead holding that there will always be a place for premium marijuana in the market.

“[I]f you can deliver a top quality experience,” Bennett writes, “you will be able to charge a premium.”

Bennett says that his $50 billion estimate may be on the conservative side and that there’s a realistic upside scenario where cannabis could be worth as much as $130 billion in a decade.

“This assumes full U.S. federal legalization, full recreational and medical legalization across Europe, full medical and recreational legalization across Lat Am, and cannabis disruption of a number of other industries,” Bennett states. “Industries at risk of disruption are pharma, alcohol, health and wellness, pet care and smoking cessation.”

As far as particulars go, while Bennett appreciates the work done by sector leader Canopy Growth, he gives it a Hold rating, arguing that the stock is already fully valued, while Cronos Group received an Underperform, saying that it’s overbought. Along with Aurora and CannTrust, Bennett’s other Buys include the Green Organic Dutchman, OrganiGram Holdings and the Flowr Corporation.

“[Jefferies] basically has the thesis that when you want to play in the space, you have to look at major players that have both medical and recreational exposure and a strong position to get into the United States,” says Amber Kanwar of BNN Bloomberg on Monday. “From that tune, their best names are Aurora Cannabis and Canopy Growth, however they only have a Buy rating on Aurora, thinking that it’s not fully appreciated by the market. On Canopy, they like the company but they say that the run-up means that it’s fully valued.”

Cronos has been the big gainer in 2019, with the stock jumping 85 per cent so far, but Bennett argues that the run-up has gone too far, giving it an Underperform rating and $17.00 price target. Cronos Group ended trading on Monday down 7.6 per cent to $20.25, while Aurora finished Monday up 4.7 per cent to $7.29.

“[Jefferies] looks at that deal that [Cronos] did with Altria and they quite frankly don’t see any material benefits coming out of it,” says Kanwar. “It’s a little less clear perhaps with a cigarette maker what the potential innovations are and what could potentially come of this deal.”