A New York-based analyst says Canada’s cannabis sector has bottomed out, predicting several positive events in the coming year should catalyze pot stocks as valuations trade at two-year lows.

Cantor Fitzgerald Analyst Pablo Zuanic, who initiated coverage of six cannabis stocks Monday, said in a report to clients that several pot companies are attractive at current levels based on the long-term opportunity and that concerns hanging over the sector are priced in and overdone.

“We are calling the bottom on Canadian cannabis stocks and think positive catalysts far outweigh negative ones,” Zuanic said in the report. He initiated coverage of Aphria Inc. and Organigram Holdings Inc. with “overweight” ratings, while Aurora Cannabis Inc., Canopy Growth Corp. and Tilray Inc. were assigned “neutral” ratings. Hexo Corp. was assigned an “underweight” rating.

Zuanic attributed his bullishness to strong growth seen in Canadian recreational cannabis sales, an increase in retail store openings, the pending roll-out of Cannabis 2.0 products such as vapes and edibles, further sector consolidation, and potential interest from major consumer packaged goods companies partnering with pot companies. Some risks to his outlook include potential changes to regulations amid the U.S. vaping-related health crisis and lower prices that may result in expansion delays.

Zuanic sees the Canadian cannabis recreational market expanding to $2.44 billion in sales in 2020 and $4.5 billion by 2022, which is generally in line with what other analysts have estimated. He also forecast a Canadian medical cannabis market of $850 million by 2022, while the international medical market is estimated to reach $2.7 billion.  

“We think retailers and consumers will become more discerning about suppliers and brands, and we believe smaller companies may not be well equipped to meet the demand for derivatives,” Zuanic said.

Canada is likely to end 2020 with 1,000 pot stores across the country, double the current amount, while upcoming provincial deregulation, such as Ontario allowing producers to ship products directly to retailers, should improve any issues with distribution, Zuanic said.

Interestingly, Zuanic didn’t factor in sales of CBD products into the U.S. market for the Canadian cannabis companies on his coverage radar given a fragmented U.S. market and lack of visibility on how CBD is regulated. Still, he projects the U.S. CBD market to reach US$15 billion in sales by 2023, up from US$2 billion in 2018.

“The CBD industry remains poorly regulated, but preliminary studies have found CBD can help with anxiety, cognition, movement disorders, and pain. If true, this could certainly add more consumers to the total cannabis market,” Zuanic said.