Cormark Securities Cuts Canopy Growth’s Price Target

Canopy Growth’s target cut

On June 24, Cormark Securities cut Canopy Growth’s (WEED) (CGC) price target to 65 Canadian dollars from 70 Canadian dollars after the company released its earnings, which largely missed expectations. While slashing its price target on the company, Cormark maintained its “buy” recommendation on the stock, which was in line with the consensus of the 20 analysts covering the stock.

Cormark expects Canopy Growth’s operating losses to continue to widen in the next quarter. Canopy Growth expects Q1 margins to be pressured as a result of high upfront expenses for growth. As the company realizes the full potential of these costs, it expects its gross margin to expand in excess of 40% by the end of next year. Read Key Takeaways from Canopy Growth’s Q4 Earnings Call.

Cormark Securities also lowered its sales target for the company’s fiscal 2020 to 601 million Canadian dollars from 649 million Canadian dollars, representing a downward adjustment of about 7.4%. The adjusted EBITDA is expected to widen to a loss of 369 million Canadian dollars from the previous estimate of a loss of 164 million Canadian dollars. This downward adjustment is yet another reality check for investors that had priced in high growth in the cannabis companies.

On June 24, Canopy Growth closed higher by 0.5% to 53 Canadian dollars, while Tilray (TLRY) closed 4.8% lower, and the Horizons Marijuana Life Sciences ETF (HMMJ) closed lower by 0.7%.