BofA Says Canopy Stock Is 'A Show Me Story,' Lowers Price Target

Canopy Growth Corporation CGC entered into an additional privately negotiated exchange agreement on Friday with a holder of the company's outstanding 4.25% unsecured senior notes due in 2023, to acquire approximately CA$7.25 million ($5.6 million) aggregate principal amount of the notes from the noteholders in exchange for common shares of the company and approximately CA$140,000 ($110,000) in cash for accrued and unpaid interest.

The news comes on the heels of Canopy expanding its cannabis beverage portfolio, launching its new Just Hits Different brand campaign and entering into exchange agreements with holders of approximately $198 million of convertible notes. The latter sent the stock down 21.7%. 

Year-to-date, the stock declined by 70.75%. 

The Analyst

BofA’s Lisa K. Lewandowski lowered the price target on Canopy’s stock to $2.33 from $4.77, keeping an ‘Underperform’ rating. 

The Thesis 

The analyst lowered the price target to address a decline in sales at Storz & Bickel (vaporizes) due to the inflationary pressures on food, fuel, and other everyday products. “The other half of the decline is driven by slightly softer Canadian adult-use sales and rightsizing of our BioSteel beverage forecasts,” Lewandowski noted.

Another reason to maintain an ‘underperform’ rating on Canopy’s stock is the lack of U.S. Congressional progress on marijuana legalizations.

“It appears there remains an appetite for cannabis reform, but the breadth of reform remains fluid and likely narrowed given limited support for broad-based reform,” the analyst said. According to Lewandowski, progress is unlikely until the mid-term elections in early November.

“We think of Canopy as a show me story given its limited success in rightsizing the company to date. We think Canopy’s premium to peers is appropriate given Canopy’s cash position and advanced US entry plan,” the analyst concluded.

The Price Action 

Canopy Growth’s shares traded 1.40% lower at $2.8 per share at the time of writing Friday morning.

Photo: Courtesy of Jeff W on Unsplash