Tilray Vs. Canopy Growth: Which Cannabis Stock Deserves Premium Valuation? Analyst Opines

Canopy Growth Corp. CGC recently confirmed that it is undertaking a series of initiatives, including layoffs, to reduce costs and drive efficiency in order to accelerate its path to profitability. Somewhat earlier it also reported strategic adjustments to generate $100-$150 million in savings within 12-18 months. Year-to-date, Canopy stock is down 44.89%.

In the meantime, Tilray's TLRY Breckenridge Distillery announced the second edition of the Collectors Art Series, a limited release bottle with local Denver street artist and muralist, Alexandrea Pangburn.

Meanwhile, Tilray's stock has dropped 34.10% year-to-date, which begs a question: which of these two cannabis giants deserves a premium valuation. Thankfully, a key analyst has an interesting take on the question.

Cantor Fitzgerald’s Pablo Zuanic kept a ‘Neutral’ rating on both stocks lowering the price target on Tilray to CA$6.15 from CA$8.40 and  Canopy’s stock to CA$7.75 from CA$11.00. 

The Thesis 

Both Tilray and Canopy stocks lost 40% in the last month compared to AdvisorShares Pure Cannabis ETF YOLO that fell 25% and SPDR S&P 500's SPY 8% drop.

The analyst noted that Tilray’s valuation premium to Canopy has widened adding there could be risks to the upside, which depend on: 

1. Outlook commentary this week at the Tilray investor day and Canopy highlighting precise financial goals. 
2. Federal level reform news flow. 

According to Zuanic’s calculations, Tilray’s cannabis unit is valued at around 30% premium to Canopy Growth’s based on CY22 sales estimates. Considering that Canopy has better developed U.S. operations than Tilray and support of Constellation Brands STZ, one may argue that Canopy deserves a premium, the analyst said. 

He further justified the Tilray premium with Canopy having less scale in exports and in domestic recreational, a domestic portfolio more reliant on value than Tilray, significant cash burn and negative EBITDA. 

Price Action 

Tilray shares traded 3.39% lower at $4.84 per share and Canopy’s shares were trading 2.10% lower at $5.12 per share at the time of writing, Thursday morning.

Photo: Courtesy of Avery Meeker on Unsplash