Which Canadian Cannabis Producer Is Best Positioned To Enter The US?

After Thursday's approval of the Marijuana, Opportunity, 

Reinvestment and Expungement (MORE) Act of 2021 in a 26-15 vote in the House Judiciary Committee, BofA analyst Heather Balsky said in her most recent note that Canopy Growth Corporation WEED CGC is best positioned among Canadian producers to debut in the US upon federal legalization. 

However, despite the company's stock showing signs of reversal toward the upside on Thursday after months of a steep downtrend, the stock reached a new low on Friday, trading 5.05% lower at 13.16$ per share at the time of writing.

The Analyst

Balsky lowered her price target CA$22 ($17.5) from CA$41 due to the lower er outlook and multiple ple (10x FY2 EV/sales vs. 15x prior) while downgrading to Neutral from a Buy rating on Canopy's stock.

The Thesis

The analyst sees a "near-term risk" to the company's F2H22 profitability 2020 outlook "because its BioSteel roll-out and Canada cannabis production ramp are currently lagging plan." 

"Biosteel is resonating with consumers, but the distribution ramp to national accounts is behind the plan," Balsky disclosed, after attending an analyst group meeting with CEO David Klein in New York on Wednesday.

The recent collaboration with WB Canna Co. & Wellness was the first time that BioSteel products became available in the Caribbean, Latin America

as well as travel retail.

Moreover, Balsky no longer estimates that Canopy will achieve the positive EBITDA in the fourth quarter of 2022, despite the company's guidance and its efforts to fulfill that goal.

The analyst estimates that adjusted EBITDA will be negative in the third and fourth quarter of fiscal 2022, at $14 million and $1 million, respectively.

"We view the near-term uncertainty as a valuation overhang," Balsky added.

Another analyst, Cantor Fitzgerald's Pablo Zuanic, thinks that Canopy will not achieve positive EBITDA before the first quarter of fiscal 2024.

Photo: Courtesy of Markus Winkler on Unsplash