Canopy Growth Is Prepared For 'Cannabis 2.0' In Canada, Analysts Say

Canopy Growth Inc. CGC WEED recently announced its new product line amid Canada's "cannabis 2.0" launch this month. Here's what the sell-side thinks.

The Analysts

Bank of America Merrill Lynch's Christopher Carey reiterated a Buy rating on Canopy Growth and raised a price objective from CA$24 ($19 USD) to CA$28.

Cantor Fitzgerald's Pablo Zuanic reiterated a Neutral rating with a price target of CA$18.90.

MKM Partners' Bill Kirk reiterated a Neutral rating with a price target of CA$23.

See Also: Cannabis 2.0: The Companies Entering Canada's New Edible, Concentrate, Topical Market

Ontario Stores Bring Upside Potential

Carey said Canopy Growth has good chances to beat estimates, "especially if [Ontario] rolls out stores as checks suggest is possible." With the company being in a continuous interaction with Ontario, Carey thinks it could indicate a store ramp in the province in 2020.

"We believe incremental stores in Ontario above our 180 store outlook has the potential to drive upside to our Canopy Growth Canada adult use revenue estimates, which would drive upside to our total company estimates too," he wrote in a note.

Canopy Is Ready for 2.0

It seems Canopy Growth is be ready from the first day to launch its THC-infused products and it will be more vertically integrated in manufacturing these than other companies, Zuanic said. While the analyst rates the stock Neutral, his projections are for it to move up together with its peer group once 2.0 products hit the shelves across the majority of Canadian provinces.

"Yes, we see 2.0 as a positive catalyst, given these formats typically account for ~60% of industry sales in most matured markets," he wrote. "We continue to think 2.0 products will be accretive to industry sales growth."

Potential For Improved Efficiency Once 2.0 Commences

The margin projections for Canopy Growth are too high, Kirk said, adding that he doesn’t expect from the company to become a profitable organization by fiscal 2022.

On the other hand, Kirk said Canopy Growth has good chances of benefiting from bigger R&D focus than its competition, especially when 2.0 starts.

Price Action

Canopy Growth's stock traded higher by 2.3% to $18.83 per share at time of publication.