The cannabis industry’s woes refuse to die down. Cash-rich companies such as Aurora Cannabis (ACB), Canopy Growth (WEED) (CGC), Aphria, and Cronos Group are also suffering. Macroeconomic and political tensions, recessionary fears, and heightened regulatory scrutiny have been pulling these stocks down. The industry is also battling several other issues, such as pricing pressures, competition, a slow retail rollout, and regulatory delays in Canada.
Access to capital has emerged as a big challenge for cannabis companies. This became obvious after Green Organic Dutchman (TGOD) announced an 85% reduction in its cannabis production capacity for 2020. On October 9, the company announced a probable change in the facility construction schedule, in case it is not able to access capital at reasonable rates. This news pulled down the share prices of all major cannabis stocks.
Since September, many prominent analysts have downgraded and reduced the target prices of cannabis companies. These downgrades further depress the overall investor sentiment and push down the companies’ stock prices.
Cowen reduced ACB’s and CGC’s target prices
On October 19, MarketWatch reported that Cowen analysts led by Vivien Azer cut ACB’s target price from 12 Canadian dollars to 6 Canadian dollars. The research agency initiated coverage on ACB stock in March with an “outperform” rating. Cowen set ACB’s target price at 14 Canadian dollars. Aurora Cannabis also replaced Canopy Growth as Cowen’s top cannabis pick.
On October 19, MarketWatch reported that Cowen analysts had cut Canopy Growth’s target price from 48 Canadian dollars to 40 Canadian dollars. In June 2019, Cowen rated the stock as a “buy” with a target price of 61.53 Canadian dollars.
Why Cowen is pessimistic about cannabis stocks
According to MarketWatch, Cowen analysts are worried about the impact of the vaping crisis on cannabis stocks. On October 17, CDC (Centers for Disease Control and Prevention) also reported a rise in vaping-related lung injury cases in the US from 1,299 as of October 8 to 1,479 as of October 15. The death toll also rose from 26 to 33.
Cannabis 2.0 legalization is a big opportunity for cannabis companies. However, some regulatory officials are blaming the vaping of black market cannabis products for this lung disease. Against this backdrop, Cowen expects Health Canada or individual provinces to impose a temporary halt on cannabis-derived products. This, in turn, will affect the top and bottom lines of cannabis companies in the coming quarters.
Recent downgrades for ACB
On October 14, MKM Partners analyst Bill Kirk reduced ACB’s target price from 5 Canadian dollars to 3.5 Canadian dollars. On September 16, Stifel Nicolaus analyst Andrew Carter also downgraded his rating for ACB from “hold” to “sell.” The analyst also reduced the company’s target price from 7 Canadian dollars to 5 Canadian dollars.