Why Does Jim Cramer Prefer CGC versus CRON?

Canopy Growth (NYSE:CGC) lost 25.4% in 2019. The company reported weak sales and higher-than-expected operating losses in the last two quarters. Along with these factors, weakness in the cannabis sector caused the stock to fall. However, this year, the stock has increased by 14.0% as of Tuesday. The appointment of a new CEO, an update on upcoming Cannabis 2.0 products, and its entry into the US CBD market increased investors’ confidence. As a result, Canopy Growth’s stock price increased. Let’s look at what Jim Cramer had to say about CGC.

Jim Cramer, CNBC’s Mad Money host, is bullish on CGC. On January 9, CNBC reported that a viewer asked Cramer about Canopy Growth in the lightning round bell. He said, “We spoke yesterday with Constellation Brands and David Kline, the excellent CFO, went over there to run Canopy. So if you’re going to have to buy one it’s going to be Canopy, cause that guy has got horse sense.” In August, after CGC’s dismal first-quarter earnings, Cramer stated that Aphria (NYSE:APHA) and Cronos Group (NASDAQ:CRON) had eclipsed Canoy Growth. However, the appointment of Constellation Brands CFO David Kline as Canopy Growth’s new CEO made Cramer go bullish on the stock.

Analysts favor a “hold” rating for Canopy Growth. Among the 23 analysts that cover the company, 13 recommend a “hold,” nine recommend a “buy,” and one recommends a “sell.” As of Tuesday, analysts’ consensus target price was 28.77 Canadian dollars, which implies a fall of 7.6% from its current stock price of 31.14 Canadian dollars. Earlier this month, Jefferies lowered its target price from 25 Canadian dollars to 21 Canadian dollars. On December 17, LB Securities initiated its coverage on CGC with a “hold” rating and a target price of 26 Canadian dollars.

As reported by Cantech Letter, Purpose Investments’ chief investment officer, Greg Taylor, expects the cannabis sector to feel a lot of pain over the next 12 months due to excess capacity. He expects the sector to witness mergers, consolidations, and bankruptcies during this period. However, he’s optimistic about CGC. He said, “Canopy is an interesting one because it’s still the biggest company globally in the sector and it has a lot of good positioning in different countries, not just Canada, and it’s still one of the odds-on favorites to be a winner going forward.”

• Among the 20 analysts that follow Aurora Cannabis (NYSE:ACB), only eight recommend a “buy.” Analysts’ consensus target price stands at 4.75 Canadian dollars with a return potential of 103.8%.
• Analysts are bullish on Aphria. Ten of the 14 analysts favoring a “buy” rating. They have set the 12-month average target price at 11.85 Canadian dollars with a return potential of 82.6%.
• Analysts favor a “hold” rating for Cronos Group. Among the 13 analysts, seven recommend a “hold” rating. Analysts’ consensus target price is 12.08 Canadian dollars with a return potential of 16.9%.

Despite falling 25.4% last year, CGC beat its peers. In 2019, Aurora Cannabis, Cronos Group, and HEXO (TSE:HEXO) lost 58.8%, 30.7%, and 56.1% of their stock values, respectively. So far this year, Canopy Growth has outperformed its peers. Aurora Cannabis, Cronos Group, and Hexo have returned -16.5%, 3.6%, and 0.5%, respectively, YTD.