Canopy Growth Analyst Sees Increasing Cannabis Market Share, Little Stock Upside

Canopy Growth Corp. CGC shares traded higher on Tuesday after the company held a virtual meeting on Monday and reassured investors that the company is leading the cannabis group in three major long-term growth markets.

Canopy management said its long-term plan is to continue to focus on the Canadian market, the U.S. CBD market and the German market. The company’s total global addressable market is projected at $70 billion by 2023, and the U.S., Canada and Germany will account for 90% of that market.

From 2019 to 2023, Canopy is projecting the Canadian cannabis market will grow by 400%, the U.S. CBD market will grow by 600% and the German market will grow by 1,000%.

A Canopy Analyst's Take: BofA Securities analyst Bryan Spillane said Tuesday that Canopy also emphasized its advantages in R&D, consumer insights, supply chain infrastructure and capitalization.

“Opening more Canadian stores is not everything as CGC plans to adjust its product offerings in order to compete more effectively against the illegal market, not by just lowering prices but through offering superior consumer experiences,” the analyst said. 

Canopy also said it will update long-term financial guidance once COVID-19's impacts dissipate.

Canopy’s recreational Canadian sales were down 28% in the March quarter compared to 18% overall growth in sales for the market as a whole.

Canopy Valuation Concerns: Cantor Fitzgerald analyst Pablo Zuanic said Tuesday that Canopy is positioned well to regain lost market share in the Canadian market and help convert legacy illegal marijuana users to the legal market, particularly via the launch of edibles and beverages. 

Yet Zuanic sees little upside for the stock at today's valuation.

“If we assume a 25% share on the 2023 TAM opportunity and 20% EBITDA margins by then (although guidance points to 10-15%), and if we use a 0.5 wholesale deflator and 15-20x EV/EBITDA, this would mean an EV of only $8-11Bn, vs. C$8.2Bn at present,” he said Tuesday. 

Instead of Canopy, Zuanic prefers Canadian cannabis plays Aphria Inc APHA and Aurora Cannabis Inc ACB.

Bank of America has a Buy rating and CA$30 ($21.70) price target for Canopy.

Cantor Fitzgerald has a Neutral rating with a price target lowered from CA$27 to CA$25.50. 

Benzinga’s Take: One potential catalyst for cannabis stocks with exposure to the U.S. market is the upcoming November election. Legalization measures are already on the ballot in four states, and advocates are collecting signatures to get additional measures on the 2020 ballot in six other states.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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