Cantor Fitzgerald Lowers Price Target On Canopy Growth Stock Post Q3 Earnings

Canopy Growth Corporation CGC WEED recently unveiled financial results for the third quarter ending on Dec. 31, 2022.

Among the announcements the company made included a headcount reduction of approximately 60%.

Here's a breakdown of the report:

  • Net revenue of CA$101 million ($75.4 million), a 28% decrease compared to Q3 FY2022.
  • Gross margin was (2%) as compared to 7% in Q3 FY2022.
  • Net loss CA$267 million, which is a CA$151 million increase in the net loss versus Q3 FY2022.
  • Adjusted EBITDA loss was CA$88 million, a CA$21 million increase in adjusted EBITDA loss versus Q3 FY2022.
  • The company is transitioning to an asset-light model in Canada by exiting cannabis flower cultivation in the company's Smiths Falls, Ontario facility
  • It will also cease sourcing cannabis flower from the Mirabel, Quebec facility
  • Canopy will be moving to a third-party sourcing model for cannabis beverages, edibles, vapes, and extracts.

The Analyst

Following the report, Cantor Fitzgerald’s Pablo Zuanic maintained a ‘Neutral’ rating on Canopy Growth’s stock, reducing the price target from $3.3 to $3.2.

The Thesis

The analyst lowered the price target as recreational cannabis market in Canada poses significant structural challenges, and several companies have not been able to find a way to be profitable there. While some companies have diversified into other industries or downsized their recreational exposure, Canopy Growth is switching to asset-light model in Canada.

The analyst noted that the stock has recovered almost half of the 17% drop seen on 2/9 (S&P500 flat), down only 10% since then, and that of all the Canadian Cannabis companies, the stock remains the most directly exposed to U.S. legalization.

Zuanic also noted that his takeaway from last week’s call was positive: the probability it will remain NASDAQ-listed has increased, and the company may be able to find other ways to show the performance of the U.S. assets without consolidating them outright.

The Price Action

Canopy Growth shares were trading 1.43% lower at $2.405 per share at the time of writing Friday morning.

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