Canopy Growth (CGC) recently received a massive boost, when brewing giant Constellation Brands (STZ) expanded a move to buy a 9.9% stake in Canopy into an eye-opening 38%, a move that included a $4 billion cash infusion into the Alberta-based marijuana company. The move came just ahead of Canada’s legalization, and Canopy’s president, Bruce Linton, has indicated that the funds will go toward international expansion and new product development.
Cowen analyst Vivien Azer sees Constellation’s acquisition of such a large piece of Canopy as part of a larger picture. Casting her eye on the marijuana market as a whole, she sees an early-stage industry poised for rapid take-off; she predicts that buying legal marijuana will get easier as more US jurisdictions join Canada and the ten states that already have legalization, and as companies like Canopy increase their production and supply. While she doesn’t set a firm price target, she gives the company a buy rating and takes a bullish stance toward future sales increases, as more states move to legalize or decriminalize marijuana.
Writing from Canaccord, Matt Bottomley agrees with Azer’s rundown on the company and gives CGC a buy rating with a price target of $52. This suggests an upside of 20% for Canopy Growth. (To watch Bottomley’s track record, click here)
However, there has been a sour note recently in the general good news around Canopy. In February, the company reported a key mistake in its Q3 earnings, saying that there had been a “spreadsheet error” in the report resulting in an $86 million correction. To make matters worse, the error was reported at 11pm – avoiding the regular news cycle – and the company made no comment other than to say it was a “formula error” in the spreadsheet.
Analyst Martin Landry of GMP was not so easily appeased by the company statement. After Canopy’s admission, he lowered his price target to $49, and reduced his stance on the stock to a hold. The mistake raises serious questions, most notably, how did this get past the accountants, and can Canopy’s numbers be trusted in the future.
It is important to note, however, that reservations about Canopy are not about the company’s business prospects; it is possible that Canopy can restore its reputation with more transparent future reporting.
All in all, it’s clear that Wall Street is largely divided between the bulls and the fence sitters when it comes to Canopy stock. In the last three months, the cannabis stock has landed 2 ‘buy’ ratings vs. 18 ‘hold’ ratings. The stock is traded on both the NYSE and the TSE; it’s average price target in US dollars is $49, which is C$67 in Canadian currency. This gives CGC a 15% upside to the current share price ($43 and C$58).
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
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