Although the Canadian cannabis market has evolved more slowly than expected, Canopy Growth Corp CGC has the potential to become a long-term leader in this sector, according to BofA Securities.
The Canopy Growth Analyst
Bryan Spillane reinstated coverage of Canopy Growth with a Buy rating and CA$30 ($21.61) price target.
The Canopy Growth Thesis
Canopy Growth’s recent developments, like management changes and "right-sizing" of operations, as well as its strong cash and market share position, make the company a good candidate to become a leader in the cannabis sector, Spillane said in a Friday note. (See his track record here.)
A robust balance sheet has allowed Canopy Growth to scale its business in both Canada and abroad faster than its peers, the analyst said.
While Canopy Growth had initially adopted a “be-first” approach, management now seems to be focusing on “striking a balance between growth, productivity and financial returns,” he said.
The company has already reduced capacity in Canada, scaling back the organization as well as some international projects, Spillane said.
While there are some near-term risks for Canopy Growth, like executing the roll-out of derivative product forms in Canada, these are “appropriately reflected in Street estimates and valuation on shares,” the analyst said.
CGC Price Action
Shares of Canopy Growth were trading 6.38% higher to $19.34 at the time of publication Friday.
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Courtesy photo.
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