UPDATE: Bernstein Starts Canopy Growth Corp (CGC) at Underperform

(Updated - November 1, 2022 4:18 PM EDT)

Bernstein analyst Nadine Sarwat initiates coverage on Canopy Growth Corp (NASDAQ: CGC) with a Underperform rating and a price target of $1.50.

The analyst comments "Canopy’s Canadian cannabis portfolio has been meaningfully hit by price compression, market share loss and transitory headwinds from shifting the portfolio to premium flower. This, in combination with the sale of the German C3 business and Canadian B2C business (the latter for nominal value), means that despite expecting Canopy’s core recreational B2B sales to return to long-term growth, cannabis net sales will remain below the F21 peak. Biosteel is the bright spot in the portfolio, and we expect this to continue through distribution gains and exposure to the favorable sports hydration market. But with Canopy having the weakest cannabis gross margin in our coverage, we don’t forecast the company reaching positive adjusted EBITDA until F26. The set up of Canopy USA has two key factors: (i) realization of revenue and cost synergies amongst Acreage, Wana and Jetty, and (ii) a change in ownership structure making use of exchangeable shares. We believe the first factor will likely deliver incremental value to Canopy USA. However, we believe the second factor is akin to shuffling cards in a deck (but the deck itself not changing). Until US federal legalization (which doesn't appear likely anytime soon), no cash will flow from Canopy USA to Canopy Growth, which continues to burn cash. We believe it will need to issue additional equity in the near future. We see meaningful downside to the name."

For an analyst ratings summary and ratings history on Canopy Growth Corp click here. For more ratings news on Canopy Growth Corp click here.

Shares of Canopy Growth Corp closed at $3.73 yesterday.

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