Analyst: Canopy Growth Still A Top Cannabis Stock Despite Mixed Quarter

Canopy Growth Corp CGC shares tanked Friday after the company’s fourth-quarter earnings report fell short of Wall Street expectations.

Despite the mixed report, one analyst said Canopy is still a top cannabis play for the long-term.

The Analyst

Bank of America Merrill Lynch analyst Christopher Carey reiterated a Buy rating on Canopy Growth with a $56 price target.

Need more cannabis news? Check out all of our coverage here.

The Thesis

Canopy reported fourth-quarter sales of CA$94.1 million ($71.2 million), up 13.2% sequentially and 313% year-over-year. Revenue topped consensus analyst estimates of CA$92.6 million.

Canopy also reported a net earnings per share loss of CA$0.98, more than three times the CA$0.32 loss analysts were expecting.

Carey said revenue growth is on track, but Canopy’s heavy investments to build up its scale and global infrastructure are eating into profits. (See his track record here.) 

“The one area that we think deserves more clarity is gross margin, which deteriorated q/q from a low base (even if including costs before any associated revenue),” the analyst said. 

Despite the earnings and margin hiccup, Carey said Canopy is still well-positioned to execute its global expansion plans given the financial flexibility provided by more than CA$4 billion of cash on hand.

Looking ahead, Carey said the size and the scope of Canopy’s U.S. CBD business will become the primary near-term focus for the market.

Canopy is expected to launch its U.S. CBD products by the end of fiscal 2020 in March 2020.

Price Action

Despite Friday’s sell-off, Canopy shares are up 48.5% overall year-to-date. The stock was down 7.89% at the time of publication at $40.25. 

Related Links:

Canopy Shareholders Approve Acreage Deal, Legalization In Focus

Tilson Says Wait For The Bust In Cannabis Stocks