Cannabis Sector: Piper Jaffray Favors Canopy and Cronos


Oct. 22 2019, Published 12:44 p.m. ET

So far, cannabis stocks have struggled this year. Many of the stocks didn’t impress investors with their earnings results. Analysts downgraded and cut many cannabis players’ target prices like Aurora Cannabis (ACB), Canopy Growth (CGC) (WEED), Cronos Group (CRON), and Hexo (HEXO). Overall, pessimism has engulfed the sector. However, a Piper Jaffray analyst revisited these stocks. The analyst favors Canopy Growth and Cronos Group. Let’s see why.

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Which cannabis stocks does Piper Jaffray favor?

In a research note today, Piper Jaffray analyst Michael Lavery mentioned his view on four cannabis stocks—Aurora Cannabis, Canopy Growth, Cronos Group, and Tilray. He thinks that Canopy Growth and Cronos Group have good positions in the industry. They have strong cash positions to aid their growth initiatives. He said that both companies have clear strategies for the future. However, Lavery reduced the target price for Canopy Growth to $36 from $40, which represents an upside potential of 76.6% from its current trading price. He also reduced the target price for Cronos Group to $12 from $18, which represents an upside potential of 42.1% from its current trading price.

Canopy Growth is holding its ground 

Regarding Canopy Growth, I don’t disagree with Lavery’s suggestions. Constellation Brands (STZ) has a 35% stake in Canopy Growth—the company’s largest shareholder. Constellation Brands is responsible for most of the company’s vital decisions.

Meanwhile, Constellation Brands’ presence gives Canopy Growth strong financial footing in the cannabis industry. The company also gives Canopy Growth financial support for expansion. Currently, Canopy Growth has a market capitalization of $6.9 billion.

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In August, Jim Cramer, CNBC’s Mad Money hostfavored Canopy Growth and Cronos Group. He said that both of the companies have long-term growth potential. Later, he dropped Canopy Growth and replaced it with Aphria. Notably, Canopy Growth reported disappointing results for the first quarter of fiscal 2020. Cramer also mentioned that for Canopy Growth needs to hire a packaged goods CEO to achieve profitability. To learn more, read Jim Cramer: Canopy Growth Needs a Packaged Goods CEO.

Recently, Canopy Growth expanded its CBD market by acquiring BioSteel Sports Nutrition Company to launch healthy cannabis-infused beverages. The company completed the acquisition of cannabinoid-based research company Beckley Canopy Therapeutics to strengthen its hold in the medical cannabis space.

Cronos Group is expanding into the Australian market. Recently, the company announced that its stock will be listed on the Australian Securities Exchange next month. Cronos Group also expanded into the edibles market in Canada. The company plans to manufacture cannabis concentrate-filled next-generation vape products.

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Piper Jaffray discussed Aurora Cannabis and Tilray 

Besides Canopy Growth and Cronos Group, Lavery maintained his neutral rating on Aurora Cannabis stock. He said that Aurora Cannabis lacks visibility on key strategic growth priorities. He reduced the target price to $4 from $7, which represents a growth potential of 8.4% from its current trading price.

Lavery reduced the target price for Tilray to $31 from $72, which represents an upside potential of 38.1% from its current trading price. However, he maintained his “overweight” rating on the stock. He thinks that Tilray still has growth potential in Europe and the US.

As of 11:17 AM ET, Aurora Cannabis and Tilray stocks have fallen 3.3% and 0.45%. Canopy Growth has risen 0.36%, while Cronos Group has fallen 2.2%.

Cannabis companies’ upcoming earnings 

Canopy Growth will report its earnings for the second quarter of fiscal 2020 in November. Cronos Group will report its third-quarter results in November.

Hexo will report its fourth-quarter earnings on Thursday. Read HEXO: What Can You Expect from Its Q4 Earnings? to learn more. Aphria’s (APHA) strong earnings boosted the cannabis sector. Overall, the sector has struggled since Hexo’s disappointing news. Hexo withdrew its fiscal 2020 outlook, which created doubts about the cannabis industry’s growth. Analysts reduced many cannabis stocks’ target prices. However, Aphria’s results and Cannabis 2.0 were good news for the sector this month. Canada legalized its second phase of recreational cannabis on October 17. Meanwhile, Mexico’s final legalization bill is ready for voting. Read Cannabis in Mexico: Legalization Bill Is Ready for Voting! to learn more.

For analysts’ ratings and marijuana-related news and updates, please follow 420 Investor Daily.


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