What Can Help Canopy Growth Reach $250M In Sales? Analyst's Thoughts Ahead Of Earnings

Canopy Growth Corporation WEED (NASDAQ: CGC) is scheduled to release its financial results for the second quarter fiscal year 2022 ended September 30, 2021, before financial markets open on November 5, 2021. 

On Wednesday, the Canadian cannabis giant announced the launch of two new product offerings from its Deep Space brand – Limon Splashdown and Deep Space XPRESS, while last week it confirmed the launch of a new CBD line - Harvest Medley CBD Wellness Gummies in partnership with Martha Stewart and Marquee Brands.

Year-to-date, the company’s stock fell 55.58%. 

The Analyst

Cantor Fitzgerald’s analyst Pablo Zuanic lowered the price target on Canopy’s stock to CA$18.50 ($14.90 ) from CA$21 keeping a ‘Neutral’ rating.

The Thesis

Canopy Growth previously issued guidance calling for a year-over-year sales decline despite the addition of Supreme Cannabis, the analyst noted.

To address reduced estimates and reflect sectoral deratings, Zuanic lowered the price target on Canopy’s stock.

“With low expectations, we think sentiment may be driven by company commentary on the path to $250Mn in quarterly sales (almost 2x current levels), break-even EBITDA by March, and growth in the non-cannabis business,” Zuanic wrote.

Recently, the analyst argued that Canopy’s current cannabis business is structurally similar to that of Tilray (NASDAQ: TLRY), although Tilray generates 43% gross margins in cannabis compared to mid-teens for Canopy.

“Greater color on production/cultivation efficiencies would help — is Tilray’s 51%- owned Aphria Diamond unit that much more efficient than Canopy’s own production facilities,” the analyst asked.

Will BioSteel Drive Growth? 

Zuanic projected quarterly sales to reach $136 million, compared to FactSet consensus at $143 million, noting that the lack of sequential growth in reported sales with one full quarter of Supreme is surprising.

Zuanic added that “unlike other companies announcing shipments to Israel (Aurora (NASDAQ: ACB), Hexo (NASDAQ: HEXO), Organigram (NASDAQ: OGI) and or market share gains in Germany (Aurora), we are not aware of acceleration in the company’s international cannabis business. So, that would mean the non-cannabis business will need to drive the growth, especially BioSteel.”

BioSteel could end up being a key driver in the path to $250 million in sales, helped by constant growth around CBD and other non-marijuana businesses, the analyst added.

Canopy Growth shares are down 30% in the last three months compared with a 21% drop in AdvisorShares Pure Cannabis ETF (ARCA: YOLO) and a 6% gain for SPDR S&P 500 (ARCA: SPY).

Still, the stock trades at the premium, which could be explained by its Constellation Brands STZ backing and U.S. optionality, Zuanic explained.

“We rate the stock Neutral, but we realize it is a bellwether stock, in a momentum sector, and more sensitive than most peers to news flow about federal changes in US regulation.”

Price Action 

Canopy Growth’s shares were trading 2.45% higher at $13.39 per share at the time of writing on Wednesday morning. 

Photo: Courtesy of  Alex Woods on Unsplash