Cannabis stocks have been on fire since the November election, and one Wall Street analyst expanded his coverage of the US multi-state operator group on Friday by initiating coverage of three new stocks.

The Analyst: Cantor Fitzgerald's Pablo Zuanic initiated coverage on the following companies:

• Columbia Care Inc CCHWF: initiated at Neutral, $7.30 price target.
• Jushi Holdings Inc JUSHF: initiated at Neutral, $6 price target.
• Terrascend Corp TRSSF: Initiated at Overweight, $15 price target.
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The Thesis: It is very difficult to analyze and value MSOs because of their OTC listings, their unreliable share count data and the wide range of state-by-state cannabis market conditions, Zuanic says.

Given cannabis is still illegal in the U.S. on a federal level, interstate trade is illegal and each state operates under its own set of laws and restrictions. That situation creates significant risks for many MSOs in the event of federal legalization, he added.

“Depending on the scope of reform, those changes could also force the incumbent MSOs to compete for assets in a quickly consolidating industry with the well-funded Canadian cannabis companies as well as the larger corporations from the non-THC world (US and non-US), likely better funded and with access to much lower cost of capital,” Zuanic said.

For now, Zuanic says he is most bullish on MSOs that have strong balance sheets and operate in states with favorable cannabis economics.

His preferred stock among his three new initiations is TerrAscend due to its large presence in Pennsylvania and New Jersey and its relationship with Canadian cannabis giant Canopy Growth Corp CGC, which has a 21% ownership stake in the company contingent on U.S. federal legalization.

Earlier this month, Zuanic named Trulieve Cannabis Corp TCNNF and Curaleaf Holdings Inc CURLF his top two MSO stock picks heading into 2021.

Benzinga’s Take: Cannabis stocks will likely continue to be volatile in the near term while the industry matures. Long-term investors should continue to monitor the progress of U.S. state-by-state and federal legalization efforts, and they should consider diversifying into several different names rather than putting all their cannabis eggs in one basket.