Canopy Growth's Future Hinges On US Cannabis Regulatory Shifts, Says Analyst, Issuing 'Neutral' Rating

Zuanic & Associates has initiated coverage on Canopy Growth CGC with a “Neutral” rating, citing both potential growth opportunities and significant structural challenges. While acknowledging the company’s efforts in cost-cutting and strategic repositioning, Z&A analyst Pablo Zuanic remains cautious due to regulatory uncertainties in the U.S. and profitability concerns in international markets.

Canopy Growth's U.S. Market Play

Unlike most Canadian cannabis companies, Canopy Growth has established a significant footprint in the U.S. market. Through its Canopy USA (C-USA) entity, it holds non-voting stakes in major U.S. cannabis brands, including Wana Brands (edibles), Jetty Extracts (vape) and multi-state operator Acreage Holdings. This structure allows Canopy Growth to gain exposure to the U.S. market while maintaining compliance with NASDAQ listing requirements.

Z&A notes that Canopy Growth’s U.S. expansion relies heavily on regulatory developments. Federal reform remains a major wildcard and while there is optimism about potential changes under the new administration, there are no guarantees. In the meantime, Canopy's U.S. businesses will need to scale efficiently, particularly in key markets like New York, Pennsylvania and Ohio.

International Business: A Mixed Bag

Canopy Growth is a top-three player in the international medical cannabis market, with a presence in Germany, Poland, the U.K. and Australia. However, Z&A highlights that growth has been inconsistent. While European sales were up 65% year-over-year in the last quarter, Australian revenues declined due to distribution disruptions. The firm projects a total addressable market (TAM) of $10 billion in international medical cannabis, yet Canopy's current revenues remain a fraction of that potential.

Financial Struggles And Market Positioning

Z&A's analysis underscores Canopy Growth's progress in cutting costs and streamlining operations. Gross margins have rebounded above 30% and SG&A expenses have been halved to around $CA56 million per quarter. However, Canopy Growth is still EBITDA-negative, with cash burn remaining a persistent issue. In the most recent quarter, cash outflows were CAD 28 million, equating to 12% of its total cash reserves.

See also: What’s Going On With Tilray Brands Stock Today?

On a valuation basis, Canopy Growth trades at 0.9x enterprise value-to-sales (EV/Sales), roughly in line with its peers Aurora Cannabis (1.1x) and Tilray (0.9x). However, when isolating its non-U.S. business, the valuation drops to just 0.58x sales, reflecting concerns about its international operations and domestic Canadian market performance.

Outlook And Investor Focus

Z&A analysts note that Luc Mongeau's arrival as CEO brings expectations of a sharper focus on profitability and capital efficiency. Investors will be watching closely for updates on the following:

• Expansion and brand positioning in the U.S. through Canopy USA.
• Performance in key international markets like Germany, Australia, and the U.K.
• Cost-cutting measures and efforts to reach EBITDA profitability.
• Strategic use of its at-the-market (ATM) equity facility to reduce debt.

While Canopy Growth's long-term outlook depends on regulatory shifts in the U.S. and international market growth, Z&A maintains that near-term financial discipline and operational efficiency remain crucial. The firm's “Neutral” rating reflects the balance between potential upside and ongoing risks, with the next earnings call in May expected to provide further clarity on Mongeau's strategy and execution.

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