Bank of America analyst Christopher Carey has begun coverage of the cannabis industry with a note Wednesday naming Hexo Corp. (HEXO - Get Report) as the firm's top pick in the space. 

Bank of America Merrill Lynch estimated that the Canadian cannabis supply will exceed domestic consumption by 2021, at which point it expects the market to become more mature. This will lead to more competition for shelf space, which gives HEXO an advantage due to its differentiated products, and price deflation. 

The firm gave HEXO a buy rating and $10 price target. HEXO shares were gaining 6.05% to $6.31 on Wednesday.

Meanwhile, Aurora Cannabis (ACB - Get Report) was initiated with a buy rating and $11 price target. The stock was gaining 1.6% to $9.02. Canopy Growth (CGC - Get Report) was initiated with a buy rating and $52 price target; shares rose Wednesday 2.8% to $42.85.

Carey wasn't as kind to every big name cannabis company in his note, however. 

Cronos (CRON - Get Report) was initiated with an underperform rating and $13 price target.  The stock was gaining more than 1% anyway to $15.95. 

The bank said it still likes the company's fundamentals but its current valuation gave Carey pause. 

"For Cronos, we expect attractive long-term growth and margins, while also giving credit for the cash from Altria (MO - Get Report) . Despite this, the stock still screens the most expensive in our coverage. A key risk to our rating is that Cronos deploys its recently injected capital for deals in geographies or categories the market deems attractive. Otherwise, we don't see a case for near-term upside," Carey wrote. 

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