Stifel-GMP: Canopy Growth CEO’s Legacy is “Poor Execution, Misallocated Capital, and Mismanaged Expectations.”
Earlier this month, 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 also reported negative gross margins due to an $87 million write-down.
Canopy 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 Stifel-GMP’s note, they reiterated their sell rating and cut their 12-month price target to C$12 from C$14 saying that these results, “represent the culmination of poorly executing a broadly undifferentiated strategy accompanied by mismanaged expectations.” They also believe that the control that Constellation Brands has over Canopy is negative and the control is “likely impeding any necessary strategic/personnel changes.”
For the quarterly results, Canopy came in below Stifel’s muted estimate of $135 million in revenue. The miss primarily came from the “Other” segment, with Storz & Bickel seeing a decline of 34% sequentially. Additionally, Canopy’s 12% gross margins when you back out impairments, came in well below Stifel-GMP’s estimates.
Stifel-GMP goes as far as saying that Canopy’s CEO, David Klein’s legacy with Canopy consists of “poor execution, misallocated capital, and mismanaged expectations.” Although they pass the majority of the buck off to Constellation, saying that with their majority control of the Board, Constellation has demonstrated, “a complete misunderstanding of the cannabis consumer, the industry with its inefficient capital markets dynamics, and U.S. federal reform prospects.”
Stifel-GMP has now cut Canopy’s fiscal full year 2022 estimates. They now expect revenue to be C$584 million, down from C$637 million. Their adjusted EBITDA loss estimate also grew from C$205 million to C$269 million. They say that these estimates are from management’s commentary on a muted Canadian performance, and price compression in Canopy’s global sales.
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.
