Will Canopy Growth Ever Reclaim Its Title As “King Of The Cannabis Industry”?

Although the market responded favorably to Canopy Growth’s (TSX: WEED) (Nasdaq: CGC) third-quarter earnings report, three broker-dealers issued lower price targets on the Canadian Licensed Producer (LP). 

During the quarter, Canopy Growth reported $141 million of revenue, a $67 million adjusted EBITDA loss, and a $115 million net loss. When compared to the same period last year, Canopy Growth generated less revenue but its adjusted EBITDA loss and net loss improved by $1 million and $714 million, respectively. 

Canopy Growth’s management team has been executing on a cost cutting strategy to become profitable and we will monitor this trend on a going forward basis. From selling its German medical cannabis business to acquiring strategic US cannabis assets, we are favorable on how the management team has been simplifying operations and optimizing expenses.

Although we are bullish on the cannabis market in the European Union (EU), we believe the US is the most important market to be levered to. When cannabis is legalized at the federal level in the US, Canopy Growth will be well positioned to immediately capitalize on it. For this reason, we are bullish on the management team’s strategy to become more levered to the US. 

From Acreage Holdings acquiring a licensed cannabis operator in Ohio to Wana Brands capturing additional market share of the edible industry in the US, Canopy Growth owns a portfolio of high-profile US cannabis assets. We consider the US to be the most important part of the Canopy Growth story and believe our readers need to be aware of the US assets it owns.

Canopy Growth jumped more than 10% higher after reporting earnings and will continue to closely monitor the trend. The broker-dealers that lowered its price target on the company include:

1. Cowen and Company lowered its price target to C$12.50 from C$16
2. Canaccord Genuity lowered its price target to C$10 from C$12
3. Stifel lowered its price target to C$7.5 from C$8

As of the close of trading on February 9th, Canopy Growth was trading at C$11.22 which is above two of the newly issued price targets. At current levels, there is approx. 10% of upside potential to Cowen’s price target. 

As of December 31, 2021, Canopy Growth reported to have $1.4 billion of cash and short-term investments. This amount is approx. $900 million lower than the amount of cash and short-term investments the Canadian LP reported to have as of March 31, 2021, and we consider the decrease to be significant. 

We continue to believe that Canopy Growth is a diversified cannabis company with leverage to several emerging markets. Although the recent trend has been volatile, we continue to be optimistic with the company’s long-term opportunity and believe our readers should be aware of the business. 

If you are interested in learning more about Canopy Growth’s earnings report, please send an email to support@technical420.com with the subject “Canopy Growth Earnings Report” to be added to our distribution list. 

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Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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