Canopy Growth Has Life, Say These Managers



On January 6, Canopy Growth (WEED) (CGC) rose 0.74% to 26.02 Canadian dollars on the TSE (Toronto Stock Exchange). It was also up 0.90% to $20.08 on the NYSE. The stock has taken a beating of 33.76% on the TSE since January 2, 2019. It fell 30.57% on the NYSE from January 2, 2019, to January 6, 2020.

On January 6, CGC closed 62.07% lower than its 52-week high of 70.98 Canadian dollars and 42.74% higher than its 52-week low of 18.23 Canadian dollars. The stock was also trading 61.93% below its 52-week high of $52.74 and 45.40% above its 52-week low of $13.81 on the NYSE.

Article continues below advertisement

Greg Taylor is positive about Canopy Growth

On January 3, as reported by Cantech Letter, Greg Taylor, CIO (chief investment officer) at Purpose Investments, expressed confidence in Canopy Growth. He expects many of Canada’s cannabis companies to declare bankruptcies as the sector sees major downsizing in 2020. However, he expects Canopy Growth to stand out from the crowd owing to its significant exposure to ex-Canada markets.

Although the cannabis sector started on a strong note in 2019, the year proved disastrous for cannabis companies. According to Taylor, the bubble in the Canadian cannabis sector has now burst. He’s highlighted overcapacity as well as a lack of differentiated brands as major detrimental factors for the industry. Hence, he feels that the bankruptcy wave in the industry will be much stronger than the mergers and acquisitions or consolidation waves in 2020.

In an interview with BNN Bloomberg, Taylor expressed hope for some improvement in the cannabis sector in 2020. However, he said he didn’t expect the upside to extend across the board for all cannabis stocks.

The investor also highlighted the massive influx of investor money in many Canadian cannabis stocks in 2019. As investors are now pulling this money out, he expects significant pain for the sector in the coming 12 months. However, Taylor also expects some cannabis companies to emerge as winners in 2020. According to him, the US cannabis segment is a potential growth story for 2020.

Taylor has highlighted CGC as a story worth following in 2020. He’s pointed out that the company is still the biggest cannabis player and has a significant global presence. He’s curious to see the transition of CGC from Bruce Linton’s visionary style of management to Constellation Brands’ (STZ) profitability focused management style.

Article continues below advertisement

James Hodgins is also optimistic about CGC

On December 31, as reported by Cantech Letter, James Hodgins, president and CIO of Curvature Hedge Strategies, highlighted Canopy Growth as a preferred cannabis investment for investors interested in the sector. However, he believes that cannabis investment, on the whole, is a risky bet in the current market environment. He’s pointed out the existing pricing pressures and the demand-supply imbalance in the cannabis industry. Hodgins, however, expects Ontario’s loosening of the regulatory framework for retail licenses to be a positive driver for the industry. He also expects the anticipated federal legalization of marijuana in the US to be a positive catalyst for the cannabis industry.

Although Hodgins isn’t overly enthusiastic about CGC, he still hopes the company will emerge as a survivor in the cannabis space. He has highlighted the 2.0 billion Canadian dollars in cash left on its balance sheet out of Constellation Brands’ 5 billion Canadian dollar investment. The company has been utilizing this cash at a decent pace.

However, Hodgins has indicated that Curvature Hedge Strategies doesn’t currently own any of the stock. The company is also not currently short on the stock, although it’s earned money in the past by shorting cannabis stocks. Hodgins has highlighted the high borrowing rates that must be paid when shorting cannabis stocks. He claims that the rate is around 25% for Canopy Growth and even higher for other cannabis companies.

Hodgins says his company prefers to stay away from the cannabis sector right now. However, the company will remain on the lookout for cannabis stocks with lower borrowing rates as potential short opportunities.

Article continues below advertisement

Tim Seymour is hopeful about Canopy Growth’s new CEO

On December 10, as reported by Cantech Letter, Tim Seymour, founder and CIO of Seymour Asset Management, praised the appointment of Constellation Brands CFO David Klein as CGC’s new CEO. In an interview with CNBC, he said that the management change was a move he and the market had been waiting for. He highlighted Klein’s significant contribution in shaping Canopy Growth’s new management team. Seymour also highlighted Klein’s appointment as CGC’s chairman in November 2019.

Seymour remains confident about Klein’s capability to turn things around for CGC based on his knowledge about the consumer packaged goods segment and CGC itself. However, he expects the job to be full of challenges.

How analysts are rating CGC on the TSE

A total of 23 analysts are covering Canopy Growth on the TSE as of January 6, 2020. The number of analysts covering the company first rose from ten in December 2018 to 20 in July 2019. In October 2019, 21 analysts covered the company, but the number rose to 22 in December 2019.

The overall analyst sentiment for the company deteriorated in the latter part of 2019. While most analysts rated the company as “buy” as of October 2019, they now rate it as a “hold.”

In January 2020, three analysts rate the stock as a “strong buy,” six as a “buy,” 13 as a “hold,” and one as a “strong sell.” Its rating mix is similar to that of the previous month. In December 2019, two rated it as a “strong buy,” six as a “buy,” 12 as a “hold,” and one as a “strong sell.”

The percentage of analysts rating Canopy Growth as a buying opportunity first fell from 80% in December 2018 to 65% in July 2019. The number then came down to 57.14% in October 2019, 38.09% in December 2019, and 39.13% in January 2020.

Article continues below advertisement

Analysts have given the stock a target price of 28.65 Canadian dollars, implying a potential upside of just 10.11%. Its target price first increased from 65.55 Canadian dollars in December 2018 to 69.75 Canadian dollars in July 2019. Thereafter, it fell to 50.13 Canadian dollars in October 2019 and finally to 28.13 Canadian dollars in December 2019.

How analysts are rating Canopy Growth on the NYSE

A total of 12 analysts are covering Canopy Growth on the NYSE as of January 6. The number of analysts covering the company rose from one in July 2019 to five in October 2019. It reached 12 in December 2019.

In July 2019, one analyst rated the stock as a “hold.” The majority of analysts rated it as a “buy” in July and December 2019, but they reverted back to “holds” in January 2020.

In January 2020, two analysts rate the company as a “strong buy,” two as a “buy,” seven as a “hold,” and one as a “strong sell.” In December 2019, three rated it as “strong buy,” two as a “buy,” six as a “hold,” and one as a “strong sell.” The percentage of analysts rating Canopy Growth as a buying opportunity changed from 60% in October 2019 to 50% in December 2019. Finally, it fell to 33.33% in January 2020.

Analysts have given the stock a target price of $21.38, implying a potential upside of only 6.08%. They reduced the target price from $43.00 in July 2019 to $34.77 in October 2019. They further reduced it to $23.92 in December 2019.


More From Market Realist