Last month, Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) released fourth quarter financial results and the market was not impressed by the earnings report.
Following the less-than-favorable earnings report, several broker-dealers lowered their respective price target on Canopy Growth and this is a trend that we have been closely monitoring. Earlier this week, Cowen and Company lowered its price target on the Canadian cannabis company to C$33 from C$39. Other firms to lower their price target include:
- Piper Sandler lowered to $24 from $27
- Canaccord Genuity lowered to C$30 from C$32
- MKM Partners lowered to C$51 from C$5
- CIBC lowered to C$36 from C$38
- CFRA lowered to C$75 from C$45
- Alliance Global Partners lowered to C$32 from C$40
Since June 1st, Canopy Growth has dropped almost 20% lower and momentum (as measured by the relative strength index) has been trending to the downside. We consider the relative strength index (RSI) to be an important metric as it has been approaching oversold levels.
In late June, Canopy Growth reported to have completed the acquisition of The Supreme Cannabis Company. The transaction is expected to solidify the company’s leadership position in the Canadian recreational market.
One of the most important assets that was acquired by Canopy Growth was Supreme’s premium cannabis brand, 7ACRES. The brand improves the company’s focus on the premium flower segment and supplements its production capacity through the addition of a low-cost, scalable cultivation facility in Ontario.
The facility has a proven track record as it relates to producing high-quality cannabis flower and we are favorable on the growth prospects that are associated with the transaction. We expect Canopy Growth to recognize significant synergies from the acquisition and consider this to be an important aspect of the story.
Over the next two years, Canopy Growth expects the acquisition to provide the opportunity for immediate value creation and believes that it could capture approx. $30 million of synergies during this time.
Going forward, we expect the market to be highly focused on how Canopy Growth can increase market share in Canada and in strategic international markets. We believe the name of the game for the company is execution and will monitor how the management team is able to execute on previously announced growth initiatives.
From the European Union (EU) to the United States (US), Canopy Growth owns a portfolio of strategic cannabis assets. We believe the company is executing on a multi-national expansion strategy and is an opportunity that we are closely following. If you are interested in learning more about Canopy Growth, please send an email to email@example.com with the subject “Canopy Growth” to be added to our distribution list.
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