Cantor Fitzgerald updated their price targets on Cresco Labs ($CL) and Trulieve ($TRUL) this week, revising them downward. In the case of $CL, from $21.50 to $13.50.

The reaction was swift, a combination of outrage and mocking condescension. Other analysts takes – the more bullish ones – were quickly put up as argument, so there Cantor. Take that.

The religion that the #MSOCultGang adheres to is exactly that: it’s inculcated faith. And it’s vitally important to keep emotion (and ‘faith’) away from your investing decisions.

GoBlue – in conjunction with our broader network – did the heavy lifting on Schumer’s draft bill – and discovered that as written – it prevents verticality. Hence why $TRUL took quite a haircut in their ‘price target’. I usually don’t put up other analysts’ material (nor read it), but note the highlighted part near the bottom:

So. Is DCF dead? Perhaps. I believe it was greatly truncated when N.Y. dropped their legislation. Note the almost apologetic tone earlier in the sentence.

It’s highly doubtful the ‘Draft Discussion’ Bill will go through ‘as-is’ – but the Feds are signalling strongly they desire competition in the marketplace. It’s a big feature of the US Constitution as well – whether in Article 1 or the 21st Amendment.

Anyhow, to ‘price targets’. They’re derived from economic models that try to foretell revenue and earnings on a go-forward basis (cet par). Typically for a year.

As TheCannalysts have gone at length to point out, the cannabis sector is facing regulatory flux. We see ‘meteor strike’ potential to asset valuations in the near to mid term as Schumer’s bill begins to crystallize….and finally begins the formal process of going through the House. ‘This’ or ‘that’ may or may not happen, or perhaps by degrees. It might not be ‘Legalization’, only ‘Decriminalization’. It may or may not bifurcate medical. I could go on, but you probably get the point.

And that is precisely the point of this.

How does one set a price target in a sector that has buckets of near-term economic contingencies in front of it? Answer: you can’t – without providing a wide range of outcomes. Getting a precise number is like trying to hit a gazelle at full run from 500 yards.

Notwithstanding that price targets are occasionally used as a sell-side cudgel, even ‘stable industries’ can be fanciful to predict. A long-term holding of mine – Rogers Sugar, about as fundamental as cashflow gets – got smoked last February on a logistical cock-up and a rare flaring of labour tension. They’d never tripped that wire before. It knocked my returns around for a year. And it happens.

Anyhow, know that the ‘price targets’ you’re hearing in cannabis are contingent targets based upon whatever array of contingencies the analyst has decided to put in. Even if one defines and models what they view as the most probabilistic path for the legislation to follow – the assets underneath the various companies will have a unique and segment weighted risk profile.

As a former risk guy, I like the tangible. Stuff one can weigh and measure. Or at least mitigate. Regulatory – as we’ve seen in Canada – can be more like a random walk than a linear process. Economics up here – vis a vis the 10mg limit on 2.0 products/removal of distribution etc. etc. – hit outfits hard, and changed the profit potential of the entire sector.

While profit potential of cannabis remains massive, it’s going to take time to find out where (and to whom) the tide will be flowing to.

This was prompted by a short video I watched today from a fairly well-known sector ‘analyst’. I put that in quotes, because to me, they’re part of the sell side machine. This machine is Solid State, and drive mutually beneficial narratives across the financial websites that are nothing more than advertising bill boards. It was also – to myself – a hideously embarrassing display for a ‘professional’.

If you want the most dangerous piece of analysis I’ve seen in awhile – I urge you to revisit Blue’s piece on the economics of Florida’s verticality and pro-forma removal. This work is superlative, and you won’t find this anywhere outside of a private research firm’s output. Like ours.

As the shooting range gets longer, one has to lead a skeet with an increasing amount of distance, just like the example of the gazelle. And this sector’s skeets are so far downrange – if anyone tells you anything about it other than ‘speculative’ – they’re either uninformed, disingenuous, or full of it.

Blue and I have talked a lot recently, and we’ve come to agree that – as MSO revenues (and perhaps earnings) are expected to be ‘good’ next week – and if they are and share prices don’t budge? They’re not going to be budging until this legislation and the wider economic landscape gets sorted.

<I urge the reader to listen to our next podcast – #50 – coming out in the next couple of days. GoBlue and I go skeet shooting ourselves on every major sell-side trope/excuse the sales machine has been peddling over the past 2 years. It’s gonna drop like a stone on some folks. And while it’s probably not the best way ‘To Make Friends and Influence People’ – TheCannalysts are here as independent analysts – and through financial statement analysis – know exactly what a midway looks like when we see one. Our shooting range is set at 10 yards>

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative.