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A Jefferies note suggested that near-term risk in the cannabis sector has heightened, given numerous recent negative headlines and few signs of profitability. 

Analyst Owen Bennett cut his price targets across the sector by an average of 50%. 

"We think [the consensus] may be expecting too much sequentially from names in a market where growth is not significant (yet), some capacity is set aside for extraction, and costs are increasing on derivatives prep," Bennett wrote. 

Bennett downgraded Canopy Growth (CGC - Get Report)  to underperform from hold and cut his price target to C$25 from C$77. He calls Canopy "the most expensive name across the space (even with the recent selloff)."

And while Canopy "continues to have material potential long term, signs of share pressures in Canada, near-term weak gross-margin/profit performance, lack of material catalysts, and question marks over how successful beverages will be" prompted the downgrade.

Jefferies upgraded OrganiGram (OGI)  and Flowr (FLWPF) to buy from hold, saying that selloffs of the shares were overdone. He lifted Hexo (HEXO - Get Report)  to hold from underperform, saying that "pressures [are] now better understood."

Hexo fell 23% on Thursday after issuing a revenue warning. OrganiGram fell 13% Thursday while Flowr dropped 17%.

The top picks in the firm's coverage were affirmed with buy ratings: Aurora Cannabis (ACB - Get Report) , Aphria (APHA) and Green Organic Dutchman (TGODF) . 

Bennett increased his expectation for the size of the cannabis market outside the U.S. in 2022 to $8.7 billion from $8.6 billion.

The U.S. market opportunity, including medical, is expected to be $22.4 billion in 2022 vs. its previous estimates of $21.7 billion.