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Lisa Masa shops at Harborside marijuana dispensary, Monday, Jan. 1, 2018, in Oakland, Calif. Starting New Year's Day, recreational marijuana can be sold legally in California. (AP Photo/Mathew Sumner)

The Associated Press

Inside the Market's roundup of some of today's key analyst actions

Beacon Securities has boosted its price target on CannaRoyalty Corp. (CRZ-CN), after California's law that legalized recreational cannabis came into effect on Jan. 1.

CannaRoyalty announced that Kaya Management Inc., which makes the Bhang brand vaporizers and is being acquired by CannaRoyalty, received a Temporary Cannabis Manufacturing License. This allows it to engage in commercial cannabis activity in California under the new state run system.

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"We are encouraged to see Bhang be part of the first batch of licenses issued. A number of other CannaRoyalty entities have also applied for various license categories. We expect the acquisitions of Bhang Vape and Alta Supply to close soon," said Beacon analyst Vahan Ajamian.

"CannaRoyalty also disclosed that it saw strong demand for its Soul Sugar Kitchen edibles products (95 dispensaries) and GreenRock Botanicals vaporizers (35 dispensaries) heading into the end of the year, as dispensaries loaded up on inventory preparing for Jan. 1, 2018. MedMen, a large and successful private equity firm focused on the cannabis industry, picked up the bulk of CannaRoyalty's initial order to stock up their four dispensaries in the state. Our Q4/FY17 revenue estimate is $1.2-million, which would represent 59 per cent sequential growth," the analyst said.

The analyst kept his "buy" recommendation and raised his target price to $4.75 from $4.25 "due mainly to reducing the discount rate on certain California assets."

"California is the premier cannabis market in the world – and we believe CannaRoyalty is almost the only way for public company investors to be exposed to it (and via value-added brands, technology and ancillary services). Despite this, CannaRoyalty's market cap, at just $171-million pales in comparison to that of most Canadian LPs, which for the most part do not have such a plethora of branded products. Further, while it has Canadian assets/revenue, CannaRoyalty's shares trade at a discount to even pure play U.S. cannabis operators. While they closed at an all-time high to end 2017, we see compelling value at CannaRoyalty's shares at current levels and believe they will continue to trade higher."


After Emera Inc. (EMA-T) raised $700-million -- which was larger and earlier than CIBC's prior forecast, the bank's equity research arm raised its price target for the company to $55 from $56 to reflect the financing and maintained its "outperformer" rating. The median target price is $52, according to Zacks Investment Research.

"We resume coverage following EMA's equity raise, which we consider well telegraphed by the company and commensurate with its size," said analyst Robert Catellier.

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"Given the company's target 35 per cent equity capitalization, we already reflected a higher share count in our estimates and valuation. We expect a further issue could be required to achieve its 35 per cent capitalization target by 2019/20 (also included in our valuation), though do not forecast a raise in the near term. Timing is likely to be aligned with the sanctioning of major projects, such as Atlantic Link or Big Bend. It is conceivable that additional equity could take the form of the equity treatment of hybrids. To this end, Moody's revised its outlook to Negative from Stable while maintaining a Baa3 rating," he wrote in a note.

"Proceeds will be used to finance the $7.7-billion capital program. The company's growth outlook remains solid, driven by the "greening" of generation, and has upside from potential major projects. The company has identified a potential $800-million (U.S.) of new solar projects that could be sanctioned over the next 2-3 years, and a potential coal-to-gas conversion at Big Bend could be an additional $800-million project (estimated in-service date of 2022/early-2023)."


DIRTT Environmental Solutions Ltd. (DRT-T) announced a series of changes to its management and board of directors.

Michael Goldstein has joined as Interim President, CEO and Board member, with the potential of being a candidate for this permanent role. Peter Henry has joined as Interim CFO. Mogens Smed moves into a new role as Executive Chairman, from his previous role as CEO.  Mr. Smed will continue to focus on the success of DIRTT's sales partner network, as well as key business development initiatives, reporting to the CEO. Steve Parry, Chairman of the Board, will transition to the role of independent Lead Director. Scott Jenkins, who held the roles of President, Interim CFO, and Director, has left the company.

The company said costs related to this transition are expected to be $1.5-million to $2-million a year for three years starting in 2017.

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"Overall, these changes are a surprise to us, particularly as it relates to the pace (Mr. Smed noted that he just found out about the changes this past Friday). We are also somewhat concerned that key C-Level roles have only been filled on a interim basis, which could cause internal management disruption," said Beacon Securities analyst Gabriel Leung.

"On the back of today's announcement, we are adjusting our rating to Hold (was Buy) to reflect potential uncertainty around how the permanent roles of CEO and CFO will play out, along with any potential changes to the company's go-forward strategy associated with this change in leadership team," he said.

Beacon kept its target price unchanged at $6.50 despite cutting its rating to "hold" from "buy."


The combination of Agrium Inc. and PotashCorp received regulatory clearance from the U.S. Federal Trade Commission and have closed their merger. Shares of the combined company, Nutrien Ltd. (NTR-N;NTR-T) started trading Tuesday on the Toronto and New York stock markets. The other two stocks will be delisted.

"Per previously announced approvals from India and China, the merger is conditional on PotashCorp divesting its equity stakes in Arab Potash (28 per cent interest), SQM (32 per cent) and ICL (14 per cent). The combined value of the equity stakes is $6.2-billion (U.S.). We expect these divestments to occur by the end of 2018," said AltaCorp Capital analyst Keith Carpenter.

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"Our model assumes Nutrien will realize $200-million (U.S.) in operating synergies in 2018 ($154-million after-tax), and $500-million ($370-million after-tax) in 2019," he said.

"The two predecessor companies will report Q4/17 EPS separately within the next five-six weeks. As well, within the next two months, it's expected that management will provide pro-forma Nutrien figures for 2017. Going forward, beginning with Q1/18 results, earnings will be reported as per Nutrien. We estimate 2018 and 2019 EPS of $2.49 (U.S.)and $2.58, respectively. We estimate EBITDA [earnings before interest, taxes, depreciation and amortization) of $3.77-billion for 2018 and $3.91-billion for 2019."

"Nutrien's earnings breakdown for their three largest segments would approximate 28 per cent from retail, 35 per cent from nitrogen and 25 per cent from potash. We continue to view their retail earnings and margin improvement favourably, while expecting the nitrogen business to experience some headwinds in 2018, while our medium and long-term view of potash remains negative due to a continued oversupply situation," the analyst said.

"As per management's commentary, we anticipate an initial Nutrien dividend yield of 3 per cent."

Mr. Carpenter maintained a "sector perform" rating on Nutrien and started with a target price of $50 (U.S.) which is "based upon a 19.5 times multiple to our blended 2018E/2019E EPS [earnings per share]."


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Brookfield Renewable Partners LP (BEP.UN-T) and its investment partners have closed the acquisition of TerraForm Global.

Brookfield "will hold about 31 per cent interest in the assets adding about 295 net MW [megawatts] of wind and solar assets predominately in Brazil, which should contribute about $35-million to $40-million (U.S.) (about a 6 per cent increase). Additionally, the GLBL transaction provides a toehold in the Indian and Chinese renewable energy markets, which could drive longer-term growth opportunities," said CIBC analyst Mark Jarvi.

"We have reduced the risk weighting of GLBL in our DCF-based valuation for completing the transaction; however, revised FX [foreign exchange] assumptions have largely offset the impact — we maintain our $45 (Canadian) price target and 'neutral' rating."

"The assets were largely bought for value (about 15 per cent FFO [funds from operations] yield), with potential for some modest operating synergies and optimization of financing structures over the next couple of years. Additionally, it's possible there could be asset rationalization with the sale of assets in non-core regions. The GLBL assets will be fully consolidated into BEP.UN's financials, and are forecast to add EBITDA of about $200-million-$220-million (U.S.) and about $62-million-$68-million (U.S.) on a consolidated and proportionate basis, respectively, as well as $35-million-$40-million (U.S.) of FFO net to BEP.UN," the analyst said.


U.S.-listed shares of Canadian yoga and leisure apparel maker Lululemon Athletica (LULU-Q) are up 1.46 per cent at $79.74 (U.S.). A number of brokerages have raised their price target for the company's shares due to strong holiday sales and expectations of higher sales in 2019.

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Citigroup raiseed its price target to $88 from $78, JP Morgan to $87 from $79, Telsey Advisory Group to $92 from $84.

But Citigroup downgradesed the stock to "neutral" from "buy", saying the risk-reward outlook is more balanced following the 16-per-cent rise in the compay's shares since it reported third quarter results last month.

Nineteen of 33 brokerages rate the stock a  "buy" or higher, 13 have a "hold" rating and one has a  "sell" rating or lower. The median price target is $76.

Lululemon's stock had risen 21 per cent in 2017.



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