Canopy Growth Is Growing More Pot Than It Can Sell, MKM Says

While Canopy Growth Corp CGC has announced strategic changes that could help lower its cost burden, the company is “sized for growth” that may not materialize in the medium-term, according to MKM Partners.

The Canopy Growth Analyst

Bill Kirk maintained a Neutral rating on Canopy Growth and reduced the price target from CA$21 ($15.56) to CA$19 ($14.08).

The Canopy Growth Thesis

Canopy Growth reported sequential deceleration in revenue and a wider EBITDA loss for the fiscal fourth quarter, while most peers announced sequential improvements, Kirk said in a Thursday note. (See his track record here.)

Canopy Growth identified certain strategic and organizational changes, like facilities closures, market exits and layoffs, which may reduce its cost burden, the analyst said.

Yet the company is too large for the current environment and continues to cultivate much more than it can sell, he said. 

Kirk further said that Canopy Growth may not make much progress on the adjusted EBITDA front in fiscal 2021, given low-priced and lower -margin value offerings being the primary growth opportunity.

“Upside in Canopy shares is more likely via legislative changes/excitement than operational improvement.”

CGC Price Action

Shares of Canopy Growth had declined a little over 1% to $16.35 at the time of publication Thursday.

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