Yesterday Oppenheimer analyst Rupesh Parikh initiated coverage of the Canopy Growth Corp. (CGC) with a “perform” rating and no price target.
While Parikh’s rating is lukewarm, he reasons that Canopy is “best positioned” to capitalize on the global cannabis market throughout time. Here are some of his key highlights:
- CGC enjoys first-mover advantage.
- CGC has invested in key geographies (namely the U.S., Canada and Europe).
- CGC is partnered with beverage behemoth Constellation Brands Inc. (STZ).
- CGC sits on more capital of any other cannabis company.
“However, shorter-term, we believe a full valuation, lofty Wall Street expectations, the potential for losses to persist and regulatory delays hamper the case for outperformance,” said Parikh.
Jockeying for top position
Canopy Growth and Aurora Cannabis (ACB) have been jockeying for top position for a while now. By most accounts, Aurora cannabis has been considered number one in terms of market capitalization, while CGC takes the crown for market value.
But in light of ACB’s recent lackluster earnings release, the momentum seems to be shifting into Canopy Growth’s favor. Sure, CGC was challenged earlier this year by the firing of CEO Bruce Linton and a subsequent earnings report that disappointed.
But throughout the past couple months interim CEO Mark Zekulin has made significant progress in terms of damage control, and now we’re beginning to see the company reap the rewards.
CGC stock gained nearly 19% this month. Compared to its peers, ACB broke even this month, the beleaguered CannTrust (CTST) is down 13%, and meanwhile Tilray (TLRY) produced a strong 21% increase.
“We have been in construction for 70 months,” said Zekulin. “We have four months left on that expansion plan…. A lot of that work is now done and the real focus is taking the chess board that we’ve set and really focusing on now executing.”
Canopy Growth’s primary focus is on recreational marijuana, specifically the Canadian market. To give you a better idea of what that means, 72% of Canopy Growth’s revenue came from recreational cannabis sales in its most recent earnings report.
By comparison, only 12% of those sales came from international customers. And the bulk of gross sales (80 percent) came from dried cannabis used for smoking.
The good news for CGC and the cannabis sector overall is that these Canadian oversupply dilemma may not be as severe as originally anticipated, as evidenced by the recent price of cannabis per gram.
In Canada, the average price per gram has held steady since mid-July at $7.22 CAD. Recreational marijuana purchases in Canada reached a record $85 CAD million in June, rising for a fourth-straight month.
Meanwhile, prices in the United States have risen since mid-July, seeming to conflict with the narrative that supply has outpaced demand.
CGC stock is up 5.9% year-over-year.
Canopy Growth Corp. (CGC) was trading at $27.47 per share on Thursday morning, down $1.32 (-4.58%). Year-to-date, CGC has declined N/A%, versus a 13.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Eric Bowler
Eric Bowler is an accomplished journalist providing in-depth insights for more than two decades. Over the past several years his focus has been on the marijuana industry, with a special interest in cannabis growth stocks. His daily coverage of the industry keeps him on top of the key trends with the goal of helping investors make well-informed decisions.