Over the past quarter, several Canadian and Wall Street companies lowered their price targets on major cannabis companies in North America.
After analyzing the most recent price target changes on select Canadian Licensed Producers (LPs), we have determined that the magnitude of price target reductions (in percentage) by brokers has increased significantly.
The Canadian limited partnership we have selected to better explain this trend is Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC), which was the largest cannabis company in the world a few years ago (based on the market capitalization). Below, we’ve highlighted the price target changes on Canopy Growth since November that we believe our readers should be aware of.
- February 7and – Eight Capital reduced its target price by approx. 42% (from C$12 to C$7)
- February 2n/a – CIBC has reduced its target price by 25% (from CA$12 to CA$9)
- January 6and – AGP reduced its price target by approx. 38% (from C$18 to C$11)
- December 22n/a – Bank of America reduced its price target by approx. 47% (from C$18 to C$11)
- December 19and – Piper Sandler reduced her target price by approx. 39% (from $11 to $7)
- November 9and – MKM reduced its price target by 45% (from C$51 to C$28)
- November 8and – Canaccord Genuity cut its target price by 52% (from CA$25 to CA$12)
- November 8and – Cowen reduced its price target by 51% (from CA$33 to CA$16)
During this period, three brokers changed their rating on Canopy Growth to sell and we think this is significant. The three companies were Bank of America, Canaccord Genuity and Piper Sandler.
Trying to better understand rating changes on canopy growth
After further analyzing broker rating changes from a timing perspective, we learned that the changes were related to Canopy Growth reporting earnings and announcing plans to sell its German medical cannabis business. .
We were surprised to learn that Canopy Growth was leaving the German cannabis market and the market did not respond favorably to the announcement. We see the European Union (EU) as an attractive long-term opportunity and were particularly bullish on Germany due to a change in leadership (new political party is more supportive of cannabis legalization recreational).
Canopy Growth said the main reasons for selling its German medical business were:
- Supports plan to continue to evolve into a consumer packaged goods (CPG) business
- Part of its strategy to strengthen its focus on its core markets.
- Will continue to sell cannabis products in select international medical markets as well as the Canadian recreational market
- The sale will allow Canopy Growth to avoid future operational complexities and reduce its short-term investment capital requirements by more than C$50 million.
Will Canopy Growth raise the bar in 2022?
Although Canopy Growth has fallen more than 85% from its 52-week high, the stock has rebounded more than 15% from its January lows and momentum (measured by the Relative Strength Index or RSI) has been on an upward trend.
According to Canopy Growth market capitalization (as of February 7and), the company is valued at less than C$4 billion. At one point, the Canadian LP was valued at over C$20 billion and we’ll be watching how the business evolves in 2022.
If you would like to learn more about Canopy Growth’s business developments, please email [email protected] with the topic “Canopy Growth” to add to our mailing list.
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