Launching coverage on the U.S. cannabis stocks, Wedbush Securities says that after battling multiple headwinds, the marijuana industry is positioned to reap benefits as the market expands and lawmakers introduce reforms. The analysts Gerald Pascarelli and Antoine Legault argue that over the past 18 months, the industry suffered multiple headwinds, including oversupply, price deflation, lack of new retail stores, and falling discretionary income amid rising inflation. In addition, the analysts said that the lack of progress on the regulatory front and general weakness in capital markets meant that the best-in-class multistate operators (MSO) fell more than 60% from the peak levels. "As we near the end of 2022, we believe that brighter days lie ahead for the U.S. cannabis industry," the duo wrote in a research note on Thursday, citing an attractive risk-reward setup for the leading MSOs given the market expansion and near-term regulatory reforms. Using a bottom-up analysis based on a state-by-state revenue model, the analysts project the U.S. cannabis industry to add more than $9B in value creation over the next three years. They also project more than $25B in sales and ~2% growth for the industry in 2022 and expect the total legal U.S. cannabis market to reach more than $34B by 2025. The analyst project new states in the process of launching adult-use cannabis sales or those expecting to roll out adult-use sales to account for more than 60% of that forecast. The analysts also forecast a meaningful decline in Capex spending in 2023, arguing that it will "provide a positive read through on the current supply/demand imbalance in key markets such as PA, IL, and MA." The duo notes optimism over a potential passage of the SAFE Banking Act as Congress enters the lame-duck session. In October, Sen. Cory Booker (D-N.J.) said there is a good chance for some marijuana reform legislation to pass during the lame-duck session. However, the analysts added that the SAFE Banking Act "will likely be far from comprehensive," and the Senate will only have about three weeks "to get something done." Yet, "it would be a clear catalyst for an industry starved for regulatory reform," the analysts wrote. Wedbush initiates the coverage on MSOs Cresco Labs (OTCQX:CRLBF), Curaleaf (OTCPK:CURLF), Green Thumb Industries (OTCQX:GTBIF), and Trulieve (OTCQX:TCNNF) with Outperform ratings. The analysts attribute their decision to the companies' depressed valuations and competitive advantages. However, citing the outlook for the company's revenue growth, margins, profitability, and cash flow generation, Pascarelli and Legault termed Green Thumb (OTCQX:GTBIF) as their top pick in cannabis. Seeking Alpha contributor Alexander Carchidi thinks that while Green Thumb (OTCQX:GTBIF) stock does not look cheap, it compares favorably to rivals, especially those with positive cash flow.