Analyst: Canopy Growth Can Outlast Near-Term Headwinds

Canopy Growth Corp CGC shares are down nearly 50% in the past six months, but one analyst said Tuesday the company and its patient investors will ultimately be able to ride out the near-term headwinds in the cannabis space.

The Analyst

Piper Jaffray analyst Michael Lavery reiterated his Outperform rating for Canopy Growth and lowered his price target from $49 to $40.

The Thesis

Lavery expects the new Canopy management team to implement capital spending discipline needed for the company to be self-sufficient while the cannabis market matures.

“We continue to estimate a $250-500B potential long-term global cannabis market, with a $15-50B near-term opportunity, and believe Canopy is well positioned in the sector, particularly with US$2.3B in cash in an industry recently facing growing difficulty raising capital,” Lavery wrote in a note.

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Lavery said capital will likely end up being a key differentiator among cannabis stocks given the massive amount of investments that will be required to scale up operations. Lavery said Cronos Group Inc CRON is the only other licensed cannabis producer that's in a good enough capital position to invest in growing its business without necessarily needing to raise funds.

Lavery said vapor has been a near-term headwind for Canopy given concerns over illnesses and regulatory crackdowns, but he still believes vapor will end up a long-term bullish catalyst.

Benzinga’s Take

Cannabis investors are likely going to have to deal with extreme volatility and growing pains as the industry matures over the next several years. Rather than picking a potential winner in the group at this early stage, investors can reduce risk by choosing a handful of top early cannabis market leaders and diversifying their cannabis investment.

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