Canopy Growth Corporation (TSX:WEED), one of the Canadian marijuana stocks, said its stock will be included in the S&P/TSX 60 Index
SmallCapPower| April 16, 2019: Canopy Growth Corporation (TSX:WEED) (NYSE:CGC), one of the Canadian cannabis stocks, received some good and bad news recently. First, the bad news.
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Scotiabank trimmed their revenue forecast for Canopy Growth on the back of what it called tepid post-legalization sales. Analysts Oliver Rowe and Ben Isaacson slashed their revenue projection by 26% to $87 million for Canopy’s fiscal fourth quarter. The Ontario-based cannabis giant reported $83 million in net revenue in the period ended December 31, 2018, up 282% YoY. Scotiabank maintains a rating of ‘sector perform’ on WEED stock, with a one-year price target of $56.
The projection cuts for Canopy’s sales outlook contrasts with remarks last week from Constellation Brands Inc.’s (STZ) Chief Executive Bill Newlands. He estimates that Canopy Growth would hit $1 billion in annual sales next year. Constellation Brands has a 38% ownership stake in Canopy.
Rowe and Isaacson remain skeptical on the whole cannabis sector. The analysts said investors have been looking past “teething pains” at the onset of the legal recreational sales in Canada, pointing to lower sales in January versus December of last year. They expect the declines will extend into February, given fewer-than-expected store openings, channel build slowing materially, limits on product availability, and flat or weaker medical demand. They further said, “We see Street estimates being far too high, which we expect to result in large earnings misses next quarter. We expect aggregate calendar year first-quarter 2019 cannabis revenue to be below fourth-quarter 2018, while the Street is looking for a 35% increase.”
Post the announcement, Canopy Growth stock slumped 4.9% on Thursday to close at a market capitalization C$18.4 billion with a price-to-book multiple of 2.5x.
On the bright side, though, Canopy Growth Corp announced on April 12, 2019, that its stock will be added to the S&P/TSX 60 Index before the beginning of trading on April 18, 2019. This is significant as TSX 60 index funds will be required to buy Canopy shares in proportion to its weighting in the Index. Canopy Growth stock climbed more than 5% on Friday.
Disclosure: Neither the author nor his family own shares the company mentioned above.
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