Canopy Growth Drops on Earnings - What Wall Street Is Saying

Canopy Growth took a C$743 million charge in the fourth quarter, leading to a 20% decline Friday and further declines Monday.
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Shares of the Canadian cannabis company Canopy Growth  (CGC) - Get Report dropped Monday following its disappointing fourth-quarter print as the company withdrew near-term financial targets, leading analysts at three firms to downgrade their outlook on the company. 

Canopy Growth reported a fiscal fourth-quarter net loss of C$1.3 billion (US$946.2 million), or C$3.72 a share, vs. a loss of C$379.1 million, or C$1.10 a share, in the comparable year-earlier period. Analysts polled by FactSet had been expecting a loss of 44 cents a share.

Sales rose to C$115.1 million from C$106.5 million a year ago, above analysts’ forecasts.

After dropping more than 20% following the release Friday, shares were down another 5% premarket Monday. 

Here is what Wall Street is saying about Canopy Growth. 

Stifel (Rating downgraded to Sell from Buy, PT lowered to C$13 from C$18)

Despite the 21% decline in the shares following the 4Q20 earnings release (S&P 500 +0.5%), we believe the valuation has yet to fully reflect the challenges ahead. Canopy withdrew near-term financial targets while positioning FY21 as a “transition year”-– positioning that reflects not only the uncertainty of COVID-19 but also necessary re-wiring for the organization.

Canopy Growth sports the resources to deliver on its ambitions of leading growth in the global cannabis category, but the resources have yet to produce tangible evidence of an enduring right to win in the developing category.

-W. Andrew Carter

Canaccord Genuity (Hold rating unchanged, PT lowered to C$21 from $C23)

As previously telegraphed, Canopy booked C$743M in impairments during the quarter related to corporate restructuring after deciding to rein in a significant amount of infrastructure (most notably BC Tweed) as it looks to pivot to a more asset-light operating model. As a result, adj. gross margin came in at a loss of (C$91.8M), or (85%). 

However, we note that adjusting for the above non-cash charges, the company’s gross margin for the period would have been ~42% (~C$45M), which was ahead of our forecast of 34%, as the company noted higher utilization rates in its facilities still in operation.

-Matt Bottomley

PI Financial (Rating reduced to sell from neutral, PT lowered to $20 from $30)

We expect results will get worse before we see growth and we feel that Canopy has missed a surge in overall cannabis demand and instead has seen its market share dip to 10% in Canada’s rec market (from a high of ~20%-25%).

We acknowledge that WEED has started to take a data-driven approach to making product decisions (which we applaud) but we feel that the Company will continue to lose market position while it re-defines its new product direction.

-Jason Zandberg