Canopy Growth Is A 'Show-Me-Story' As It Posts Mixed Progress In KPIs, Analyst Argues

Earlier this month, Canopy Growth Corporation CGC WEED revealed a $CA16.3 million ($13.08 million) net loss in the second quarter of fiscal 2022 and a CA$77 million wider loss in EBITDA, versus the same period of last year.

Moreover, the company pushed out a positive Adjusted EBITDA target due to market share challenges in the Canadian recreational business and a slower-than-expected ramp-up of US distribution for BioSteel, while revealing a 3% year-over-year decline in net revenue to CA$131 million.

The Analyst

BofA’s analyst Lisa K. Lewandowski reiterated a ‘Neutral’ rating on Canopy’s stock and lowered the price target to CA$19 ($15.15) from CA$22 ($17.5).

The Thesis

Even though the analyst sees the long-term potential of the legal cannabis industry, driven by US federal legalization, she remained ‘Neutral’ on the stock given how rapidly the Canadian cannabis market is evolving, in addition to the management’s “slower than originally planned goals for profitability.“

The Canadian cannabis giant is in an “enviable cash position” considering its 38% stake, or CA$5.8 billion investment by Constellation Brands.

“We see CGC as a show-me story, given mixed progress on its KPIs,” Lewandowski said, adding that the company will “likely not be able” to reach CA$250 million in sales in the second half of 2022, needed to achieve positive EBITDA.

The analyst projects that Canopy will generate CA$152.9 million in the third quarter and between CA$578 miliion and CA$722 million in fiscal 2022/23, adding that “its medium-term goals could be reachable if the US continues to inch toward legalization.”

Nevertheless, Lewandowski sees Canopy as “one of the few cannabis companies with a solid balance sheet and management discipline to be able to ride out the slower-than-anticipated development of legal Canadian cannabis market, US federal legalization and still lingering impact of COVID-19. “

CGC Price Action

Canopy Growth’s shares traded 9.04% lower at $12.37 per share at the time of writing on Thursday.

Photo: Courtesy of Yiorgos Ntrahas on Unsplash