Cannabis stocks were mostly lower Tuesday, as investors took a breather after Monday’s gains to lock in profits and await the next developments in the sector.

Analysts are expecting to see more merger and acquisition activity in the sector, after a sharp spike in the volume of deals in the past three years. M&A activity came to $13.8 billion in 2018, up sharply from $3.5 billion in 2017, according to Korey Bauer, portfolio manager of the Cannabis Growth CANNX, -4.84% mutual fund recently launched by Foothill Capital Management.

“We believe M&A activity will remain elevated throughout 2019 as the first quarter was particularly active,” Bauer wrote in commentary published Tuesday.

Companies have been focused on growing market share and securing distribution opportunities to better compete with the three bigger names in the sector, Canopy Growth Corp. CGC, -8.97% WEED, -8.60% Aurora Cannabis Inc. ACB, -29.37% ACB, -29.08% and Tilray Inc. TLRY, -12.39% , he wrote.

Merrill Lynch analyst Chris Carey is also expecting consolidation, although for him, the trend will be driven by Canadian oversupply of cannabis over time, which will drive price deflation, pushing companies into deals.

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“Companies with competitive moats in Canada (regulatory, product) or with global strategies become more attractive, here; we see valuation more constricted for others,” the analyst wrote in a note last week.

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Carey said U.S. full legalization is possible and would be a game changer, but even without it, he expects Canadian players to accelerate U.S. strategies to ensure they have a foothold in the bigger market before a lifting of the federal ban.

Carey estimates the size of the global total addressable market (TAM) for cannabis at $166 billion, with the U.S. accounting for 34% of that total, compared with 3% for Canada. Regulation is important because it’s the key to growing that market and drawing consumers away from the illegal market.

“We estimate consumer categories generating $2.6 trillion a year in revenue could be disrupted by cannabis, from health and wellness to alcohol,” he wrote.

Meanwhile, a survey of attitudes to cannabis found Americans are more comfortable with the substance than their northern neighbors, even though Canada fully legalized weed for adult recreational use last October.

The poll conducted by PSB Research and Burson Cohn & Wolf, and reported by 420 Intel.com., found Americans are more comfortable attending a social event where cannabis is being consumed at a 52% rate versus 50% for Canadians, are more chill about dating a cannabis consumer, 53% to 50%, and even sharing a living space with a cannabis user, by 49% to 45%.

In company news, Jefferies reiterated its conviction buy rating on CannTrust Holdings Inc. US:CTST CA:TRST and its C$15 ($11) price target, which is more than 50% above its current trading level, after the company announced plans to issue another $200 million in stock and offered preliminary guidance for the first quarter. Investors likely homed in on the sales number that is almost unchanged compared with the fourth quarter, analyst Owen Bennett wrote in a note to clients.

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“This delivery should not be seen as a negative reflection on CannTrust and is more a result of industry wide issues with Health Canada data showing market growth stalling in January and February, Aphria (reported for the quarter ending Feb) showing similar trends last week (ex distribution sales at C$16.0mn vs C$21.7mn in the prior quarter), and industry commentary into the quarter also flagging little likely improvement sequentially,” said the note.

On the positive side, medical cannabis patients increased 16% from the fourth quarter, while gross margins also improved.

“We think CannTrust is a smart, consistent operator that has slipped under the radar,” said the analyst. “It’s one of the strongest medical businesses in Canada, has been performing very well in early rec, is positioned well to capitalize in derivatives, and has made some shrewd moves internationally.”

Trading at an EV (enterprise value) to 2020 sales of 3.8 times, the stock is looking cheap, compared with Cronos’ 6.6 times, Aurora’s 10.7 times, Tilray’s 12.5 times and Canopy’s 14 times, he wrote.

Cronos Group Inc. CRON, -4.89% CRON, -4.11% stock was down 3.9%, Aurora Cannabis Inc. was down 1.9%, and Tilray Inc. was down 0.6%. Canopy was down 0.1%.

Hexo Corp. HEXO, -6.47% was up 0.2%, GW Pharmaceuticals PLC GWPH, -0.99% was up 1.8%, and Green Growth Brands Inc. was down 2.7%.

Aphria Inc. stock APHA, -2.20% APHA, -1.49% was down 0.8% and Aleafia Health Inc. CA:ALEF CA:ALEF was down 3.9%. OrganiGram Holdings Inc. US:OGRMF OGI, -0.43% was down 1.65.

Medical cannabis retailer MedMen Enterprises Inc. shares MMNFF, +1.29% were down 0.2% and Green Organic Dutchman Holdings Ltd. TGOD, -6.15% TGOD, -6.15% was flat.

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The Horizons Marijuana Life Sciences ETF HMMJ, -4.70% was down 0.1%, and the ETFMG Alternative Harvest ETF MJ, -6.32% was down 0.2%.

Meanwhile, the Dow Jones Industrial Average DJIA, -1.92% was up 0.2%, while the S&P 500 index SPX, -2.37% was up 0.4%.

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