Canopy Growth Gets an Upgrade, Constellation Books Losses


Nov. 20 2020, Updated 3:05 p.m. ET

Canopy Growth (CGC) (WEED) received optimistic views from analysts on Monday. The stock, which was otherwise struggling, saw some light. Seaport Global Securities upgraded the stock to “buy” from “neutral.” The stock closed 0.6% higher on Monday. Recently, unimpressive earnings had a negative impact on the stock.

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Seaport upgraded Canopy Growth

Seaport Global upgraded Canopy Growth due to the company being an “attractive” growth opportunity. According to CNBC on Monday, Seaport analyst Brett Hundley thinks that Canopy Growth could get a boost from Canada’s “2.0 market” in cannabis. The CNBC article explained that the 2.0 market refers to Canada’s plan to let cannabis producers add various new products. The products include edibles, popular vape, and infused beverages. The products would be sold legally later this year.

According to an article by Stock Sharks on Monday, Hundley thinks that Canopy Growth could still be a safety play. He said, “Canopy stands out in the cannabis crowd as it can leverage its R&D, IP and partnerships to give consumers compelling value-added products.”

He also stressed that Canopy Growth has an attractive balance sheet. The company should seek investments that create a value multiplier of six times or more. He gave a target price of $31 to the stock, which represents an upside potential of 24.5% as of the closing price on August 23.

Canopy Growth’s results were disappointing

Canopy Growth posted disappointing first-quarter results. The company missed the top-line and bottom-line expectations. Canopy Growth’s results dragged its stock down. As a result, many other stocks followed suit. As of Monday, the stock has fallen 8.4% since the company reported its earnings. Cronos Group (CRON) reported its second-quarter results. The company’s revenues increased in the second quarter and outperformed the guidance. However, Cronos Group had massive operating losses in the second quarter, which took a toll on the stock price. The stock fell 16.4% in August. So far, the stock has risen 11.0% YTD (year-to-date).

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Constellation Brands books losses in Canopy Growth

Constellation Brands (STZ) is the largest Canopy Growth shareholder. The company invested in Canopy Growth last year. The cannabis industry is growing. Also, cannabis products are expanding. However, Canopy Growth’s dismal results this quarter booked losses for Constellation Brands. The company suffered net losses of $245 million in the last quarter. Constellation Brands’ management is optimistic about the cannabis partner. Constellation Brands’ CFO, David Klein, said that the company is happy with Canopy Growth’s investment in Storz & Bickel. Management is happy with Canopy Growth’s acquisition of Acreage. Constellation Brands expects to help Canopy Growth attain a leading position in the US after federal cannabis reform. Overall, Constellation Brands remains bullish on its Canopy Growth investment.

A Quartz article on July 3 mentioned that despite the losses, Canopy Growth is generating confidence among investors. The company’s New York hemp-growing facility could boost the US cannabis market.

What posed a challenge for cannabis players?

Canopy Growth stock received positive recommendations from Jim Cramer, CNBC’s Mad Money host, in August. He thinks that Canopy Growth and Cronos Group have good growth potential. Last week, Cramer changed his view and recommended Cronos Group and Aphria. Cramer changed his opinion about Canopy Growth after its results in the last quarter.

No doubt, regulatory concerns pose a challenge for cannabis players. Many cannabis players suffered due to their involvement in regulatory scandals. Many key executives have left companies due to regulation scandals. For example, CannTrust (CTST) (TRST) fired its CEO, Peter Aceto, who knew about the violations. The company’s chairman, Eric Paul, was asked to resign due to the regulatory scandals. Similarly, Aphria (APHA) was engulfed in allegations about its investments in South America. The company’s CEO, Vic Neufeld, resigned due to the allegations. CannTrust has fallen 24.6%, while Aphria has risen 19.1% in August. CannTrust has fallen 63.2%, while Aphria has gained 12.6% YTD.

Canopy Growth’s CEO and co-founder, Bruce Linton, also stepped down last month. However, he said it was a termination decision from Constellation Brands—the company’s largest shareholder. The stock has lost 6.8% YTD. The company might be able to revive itself. We’ll have to wait for the third-quarter results. Canopy Growth is scheduled to release its third-quarter results in November.

Marijuana legalization at the federal level could also benefit the companies. Some presidential candidates support cannabis legalization. The White House is also warming up to cannabis legalization. Read Marijuana and Trade War: Will Democrats’ Agenda Intensify? and Marijuana Legalization: Is the White House Warming Up? to learn more.


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