Canadian marijuana producer Canopy Growth (CGC) might not have enough weed stocked up to keep its grip on nearly a third of the nation’s legal cannabis market, GMP Securities said Tuesday in downgrading the stock. Canopy Growth stock fell, while other marijuana stocks were mixed in midmorning trading.
GMP Securities analyst Martin Landry, in a Tuesday research note, said he was concerned about Canopy Growth’s shrinking inventory levels, saying they could “impair its ability to sustain its near-term growth.”
“In our view, Canopy’s competitors could catch up with better inventory availability and significant capacity expansion plans which could result in declining market share,” he said.
He also said Canopy Growth needs to “better articulate its path to profitability,” as sales, general and administrative costs come in higher than sales. A big run-up in Canopy Growth stock on its Canadian exchange, meanwhile, reflects lofty sales expectations even as the company’s international prospects remain uncertain, he said.
“This impressive performance is warranted given the company’s leadership role in the global cannabis industry,” Landry wrote. “However, given the concerns expressed above, we believe that WEED’s shares may need a pause before the next leg up.”
Landry downgraded Canopy Growth stock to hold from buy. He also cut his price target on Canopy Growth stock to 65 Canadian dollars, from 70.
Canopy Growth Stock, Marijuana Stocks
Canopy Growth stock fell 2.5% to 46.39 in the stock market today. Shares are in a very deep cup base — 57% — with a handle buy point of 51.91. Breakouts from bases deeper than 40% are less likely to work.
Aurora Cannabis (ACB) dipped 1.7% in Tuesday’s stock market. Aurora remains the highest-rated of U.S.-listed Canadian marijuana stocks. It has a 95 Composite Rating out of a best-possible 99. But its 50-day line has crossed its 200-day line, a bearish signal.
Canopy Growth reported fiscal third-quarter earnings on Friday. The quarter encompassed the three months ending Dec. 30, as well as the first two-and-a-half months of recreational legalization. The company said it had 22 million Canadian dollars’ worth of finished goods during the quarter. That’s down from 56 million Canadian in the prior quarter.
Landry also said Canopy’s inventory of dried bud fell during that period in Ontario, Quebec and Alberta, three of Canada’s most populous provinces. His analysis did not include oil and softgel capsules, which made up 30% of Canopy’s Q3 sales.
Those sales were helped by strong pricing, Landry said. However, the company sold fewer kilograms of recreational pot than he anticipated. Canopy’s decision to absorb a medical marijuana excise tax also hurt margins.
Some industry executives say the global medical marijuana market is the bigger sales opportunity. But Landry noted that market remains small, for now. While Canopy Growth has a license to make hemp in New York state, more regulatory dominoes will need to fall before the marijuana industry can move with certainty.
“Global cannabis sales, excluding North America, are still small with Canopy generating only $2.7m last quarter,” Landry wrote. He added: “Capital deployment in the U.S. is a potential catalyst but contingent on regulation changes, for which visibility is limited and delays probable.”
YOU MIGHT ALSO LIKE: