Canopy Growth stock’s latest stumble continued on Monday after one of the stock’s bullish analysts said it’s time to sell.
Where we were. Canopy Growth stock (ticker: CGC) tanked more than 20% on Friday after the marijuana grower reported a loss of 1.3 billion Canadian dollars (US$954 million) during its 2020 fiscal year—though C$750 million of that came from non-cash write-downs. The company’s March quarter sales fell 13% from the December quarter to C$108 million, well below expectations.
The company also withdrew its financial forecasts, citing restructuring and the Covid-19 pandemic. CEO David Klein called fiscal 2021 a “transition” period.
What’s new. Stifel analyst Andrew Carter wrote in a note on Monday that despite the major drop last week, he doesn’t think the stock reflects the challenges ahead.
Though he thinks Canopy has the resources to deliver on its ambitions of leading growth in the global cannabis category, he noted that those resources, “have yet to produce tangible evidence of on an enduring right to win in the developing category.”
“We believe course correction will be difficult, expenses will remain elevated, and catalysts for driving enthusiasm will be slow to develop necessitating a further re-rating for the shares,” he wrote.
A Canopy Growth representative did not immediately return a request seeking comment.
Canopy stock was down 7% to $16.14 on Monday, while the ETFMG Alternative Harvest ETF (MJ)—an exchange-traded fund with exposure to the cannabis industry—was flat. The S&P 500 index was up 0.3%.
Looking ahead. Carter slashed his rating to Sell from Buy, and lowered his price target to C$18 (US$13.22) from C$23. A handful of other analysts lowered their price targets after the earnings report.
BMO Capital Markets analyst Tamy Chen lowered her rating to Market Perform (Speculative) from Outperform (Speculative). Chen wrote that she’s concerned management’s outlook for both industry-wide and Canopy’s growth may be too optimistic, given the current environment.
“As a result, we no longer believe there is upside in the stock within our investment horizon as visibility towards a turnaround has become less clear,” she added.
Write to Connor Smith at connor.smith@barrons.com
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