US and Canadian Financial Analysts Abandon Canopy Growth Corporation; Stock Sinks To Record Low

TORONTO–Canopy Growth, Corp. (TSX: WEED) hit a new low on Monday as the Canadian stock market continued to fall, fueled by underperforming limited partnerships and pessimistic market sentiment owing to inflation and rising interest rates.

In a note, analyst Matt Bottomley of Canaccord Genuity stated: “It’s not that demand is diminishing; the competition is tremendous.”

Canopy had shifted its focus to high-end, high-potency goods in order to become profitable. They also trimmed costs by laying off employees and exiting several overseas markets. But was it too little, too late?

“We feel even this bleak guidance is optimistic,” commented another analyst, Andrew Carter, of Stifel, “and our prognosis does not suggest the company can achieve positive EBITDA with the existing expense structure.”

Canopy announced that company was abandoning its medium-term revenue and cash flow targets set in February of last year.

“Shifting customer preferences, low entry barriers in the Canadian recreational market, and glacial regulatory progress across Canada and the United States make it difficult for us to provide near- to medium-term targets,” said Judy Hong, the company’s CFO.

Analysts predicted a loss of C$63.80 million, according to Refinitiv data.

The amount of money lost as a result of operating losses is far greater than any analyst projected.

Canopy Growth Chief Executive Officer David Klein (CNW Group/Canopy Growth Corporation)

BMO Capital Markets analyst Tamy Chen downgraded Canopy Growth to a “sell” rating and dropped the target price to C$2.50 following the release of the company’s most recent quarterly financial report.

The downgrade is due to the fact that the company’s cost-cutting strategy is unlikely to have a major impact on its bottom line, according to the analyst.

“Every LP will have bad crops from time to time,” she said, “but we have not seen another firm publish a gross margin as low as Canopy’s.”

A few of other brokerages have downgraded the cannabis company to a “sell” recommendation. In a note issued last week, Eight Capital decreased its target price from C$7.00 to C$5.50. Canopy Growth has been rated as a “sell” since May 24. On the same day, Canaccord Genuity Group decreased its target price from C$10.00 to C$6.00.

Canopy Growth isn’t the only one, though. Tilray (TSX: TLRY) traded at an all-time low of $3.10 on Monday. Aurora Cannabis (TSX: ACB) ended the day at C$0.02, up from its all-time low of C$1.58 on Monday.