U.S. Markets

Anonymous Analytics goes long cannabis with Turning Point Brands

(Reuters) - Activist research group Anonymous Analytics has turned its attention to the cannabis industry, initiating a buy rating on Turning Point Brands Inc TPB.N in a report on Wednesday.

The group, which holds shares in Turning Point Brands, called it “a highly profitable, but woefully under-covered and under-valued company” with a network of 1.5 million online customers and 155,000 stores.

The company, which sells periphery products including rolling papers, chewing tobacco and vapes, is covered by only two analysts, the group said.

“As its CBD (Cannabidiol) story gains awareness, we expect substantial market interest,” the report said. “Investors are thirsty for an established, profitable and non-speculative company in the cannabis space. TPB is it.”

Anonymous Analytics, which describes itself as a “faction” of the global Anonymous activist movement, first gained attention earlier this decade by exposing irregularities at several Hong Kong-listed Chinese companies, accusing them of misleading investors, while also selling the stocks short.

The group is part of a broader community of activist investors and research firms that focus on a small number of stocks which includes Muddy Waters’ Carson Block and Andrew Left of Citron Research.

Anonymous Analytics has a target price of $118 per share on Turning Point Brands, whose shares closed at $52.02 on Tuesday.

“Most cannabis companies trading at nosebleed valuations are loss-making start-ups that are still trying to build out their distribution infrastructure and compliance,” its report said.

“TPB already has the distribution, has a profitable core business with a proven management team, and has the regulatory background. If TPB traded at even a fraction of the valuation of other cannabis names, the stock would double overnight.”

The group said the largest CBD pureplay is Charlotte’s Web Holdings CWEB.TO, which has its products in only 6,000 stores but is valued at $2 billion.

“The cannabis industry is currently in its Wild West phase filled with both excesses and real potential,” Anonymous Analytics said in an email to Reuters. “It’s threading that path that’s going to be interesting, and for the most part, we think there will be a lot of companies that blow up. There will also be a few companies like TPB that can capitalize on legalization. We’re gonna be on the lookout for both.”

Reporting By Jennifer Ablan; Editing by Sonya Hepinstall