Canopy Growth: Cowen & Co Slashes Price Target To $16

On November 5th, Canopy Growth Corp (TSX: WEED) (NASDAQ: CGC) reported their fiscal second quarter 2022 financial results. The company reported declining revenues of $131.4 million, down 4% quarter over quarter. The company reported negative gross margins due to an $87 million write-down.

The company commented that if you exclude non-cash charges, their gross margins could have been roughly 12%. The firm reported adjusted EBITDA of -$163 million, lower than the -$77 million last quarter. Canopy says that the wider losses were driven by lower sales and a decline in gross margins. The company ended the quarter with $2 billion of cash and equivalents, a decrease of $300 million.

It seems like every single one of Canopy Growth’s 15 analysts cut or downgraded Canopy after their results. This brought Canopy’s average 12-month price target to C$23.22, down from $26.64. Out of the 15 analysts, 2 have buy ratings, 10 have hold ratings, 1 analyst has a sell rating, and the last 2 analysts have strong sell ratings. MKM Partners currently has the highest 12-month price target of C$51, while the lowest sits at C$12.

In Cowen’s third quarter review they lower their 12-month price target to C$16 from C$33 and downgrade Canopy Growth, saying that the companies growth remains elusive and that “Premium flower cultivation and distribution gains in the U.S. are both taking longer than expected.”

For the results, Cowen says that they came in line with their expectations as they forecasted revenues to decline 2%, although they were taken back by management’s commentary on the slow recovery for premium flower in Canada as well as a distribution from BioSteel. They believe these two segments remain critical for the company to achieve its guided C$250 million adjusted EBITDA.

They believe that the outlook for BioSteel’s revenue is the most troubling since Cowen believes the company has a strong institutional relationship in the U.S and writes, “we believe that WEED could have better embraced that potential risk in setting out and reiterating their previous profitability targets.”

Additionally, Cowen finds managements always moving goalpost for when it will be adjusted EBITDA positive very disappointing. They believed that the previous guidance of positive adjusted EBITDA by year-end was very positive and would reflect a number of underlying solid turnaround prospects.

Lastly, Cowen believes Canopy should do a number of things now to meet their C$250 million target in quarterly revenues. This includes optimization of their cultivation facilities, creating new and niche SKUs, optimizing inventory and tripling BioSteel.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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