CGC Has These Analysts Feeling Pessimistic

Cannabis stocks such as Aurora Cannabis (ACB), Canopy Growth (CGC), Cronos Group (CRON), and Aphria (APHA) were some of the worst-hit stocks in 2019. The cannabis industry first suffered due to supply-side challenges in Canada. After this issue, the slower-than-anticipated retail rollout in Canada resulted in demand bottlenecks. Safety concerns—first associated with vaping and now with CBD—continue to haunt the sector. The lack of profitability in the regulated cannabis sector has negatively affected the overall investor sentiment. The thriving black market also continues to grab revenue, taking customers away from legal cannabis players.

Many analysts who were previously bullish on cannabis stocks have now turned their backs. Once a big proponent of cannabis stocks, Mad Money host Jim Cramer now warns investors to stay away from the sector. According to CNBC, he remains positive about CGC, calling it “too good to be written off.”

But many other analysts don’t share such a positive opinion about the company.

Christine Poole remains skeptical about CGC’s growth prospects

On December 14, as reported by Cantech Letter, Christine Poole, CEO and managing director at GlobeInvest, expressed skepticism about the duration of support CGC would receive from Constellation Brands (STZ). Constellation Brands’ support is instrumental in CGC’s international market strategy. In a conversation with BNN Bloomberg, Poole highlighted the increased control exerted by Constellation on Canopy’s management after appointing its CFO, David Klein, as CGC’s new CEO. However, she pointed out that GlobeInvest doesn’t currently own any cannabis stocks.

Alex Ruus anticipates more downside for Canopy Growth

On November 29, as reported by Cantech Letter, Alex Ruus, Arrow Capital Management’s portfolio manager, warned about the potential downside risk for CGC. In a conversation with BNN Bloomberg, he expressed the possibility of further downside for cannabis stocks in the coming months. A few analysts have highlighted Canopy Growth as an attractive investment opportunity despite its dire straits. This optimism exists mainly on account of the solid cash balance on its balance sheet. However, according to Ruus, the company is using up this cash at an alarming rate. He also claims that there are very few fundamental factors driving investment in the sector.

Mike Newton advised investors to sell off CGC

On November 27, as reported by Cantech Letter, Scotia Wealth’s fund manager, Mike Newton, recommended investors sell off their CGC shares. He believed that there could be better investment avenues for the funds. He plans to revisit his investment thesis for Canopy Growth in January 2020.

Brian Madden blamed corporate governance

On November 16, as reported by Cantech Letter, Goodreid Investment Counsel’s portfolio manager, Brian Madden, expressed concerns about corporate governance at CGC. In an interview with BNN Bloomberg, he said Goodreid hadn’t invested in the cannabis space. He also expressed concerns about ongoing uncertainty in several areas. In November, he suggested less than 15 Canadian dollars as a sound target price for the company. Madden also advised investors not to put their money in cannabis stocks. He believes it’s generally tough to invest in the cannabis sector.

Analysts have revised CGC’s future revenue estimates drastically downward

Analysts first reduced WEED’s fiscal 2020 revenue estimate from 772 million Canadian dollars in December 2018 to 676 million Canadian dollars in July 2019. Thereafter, they reduced its revenue estimate to 611 million Canadian dollars in October 2019. Analysts estimated the company’s fiscal 2020 EBITDA to be 419 million Canadian dollars in December 2019. They now expect its fiscal 2020 revenue to be 405 million Canadian dollars.

In January 2020, analysts expect WEED’s fiscal 2021 revenue to be 729 million Canadian dollars. In December 2018, they estimated its fiscal 2021 revenue to be 1.32 billion Canadian dollars. They reduced it first to 1.28 billion Canadian dollars in July 2019 and then to 1.15 billion Canadian dollars in October 2019. In December 2019, analysts expected WEED to see revenue of 759 million Canadian dollars in fiscal 2021.

Analysts first increased WEED’s fiscal 2022 revenue estimate from 2.08 billion Canadian dollars in December 2018 to 2.09 billion Canadian dollars in July 2019. Thereafter, they reduced this revenue estimate to 2.02 billion Canadian dollars in October 2019 and then to 1.28 billion Canadian dollars in December 2019. They now expect the company’s fiscal 2022 revenue to be 1.18 billion Canadian dollars.

Analysts expect CGC to become EBITDA-positive in fiscal 2022

Analysts first reduced WEED’s fiscal 2020 EBITDA estimates from 144 million Canadian dollars in December 2018 to -269 million Canadian dollars in July 2019. They further reduced the EBITDA estimate to -309 million Canadian dollars in October 2019 and then to -451 million Canadian dollars in December 2019. They now expect the company’s fiscal 2020 EBITDA to be -455 million Canadian dollars.

In January 2020, analysts expect WEED’s fiscal 2021 EBITDA to be -226 million Canadian dollars. This estimate is dramatically lower than their estimates of 299 million Canadian dollars in December 2018 and 8 million Canadian dollars in July 2019. In October 2019, analysts projected WEED’s fiscal 2021 EBITDA to be -78 million Canadian dollars. They further reduced the estimate to -218 million Canadian dollars in December 2019.

Analysts estimated WEED’s fiscal 2022 EBITDA to be 584 million Canadian dollars in December 2018. They’ve revised this estimate to 21 million Canadian dollars as of January 2020. Analysts first revised the estimate downward to 301 million Canadian dollars in July 2019. Later, they reduced it again to 261 million Canadian dollars in October 2019.