Canopy Growth Corp gets price target raise to $12.00 at PI

A quarter that met his “aggressive” expectations has PI analyst Jason Zandberg raising his price target on Canopy Growth Corp. (Canopy Growth Corp. Stock Quote, Chart, News: TSX:CGC).

This morning, Canopy Growth Corp reported its Q2, 2017 results. The company earned $5.43-million on revenue of $8.5-million, a topline that was 22 per cent better than the same period last year.

“Strong growth in registered patients drove our revenues higher during the second quarter,” said CEO Bruce Linton. “We continue to believe that variety, quality and consistency of supply are key to driving market share in the legal cannabis market. These last months have seen Tweed introduce stronger genetics and growing practices into its production processes, retiring earlier strains and advancing quality to an entire new level. The fruits of this work to expand strain variety and inventory, as well as harvesting the entire 350,000-square-foot Tweed Farms greenhouse for the first time just after quarter’s end, will begin to appear in our store this quarter. Our recent acquisition of Quebec-based Vert Medical and the expansion strategy we announced with the Goldman Group represent a continuation of our plan to rapidly expand the largest cannabis production platform in the industry.”

Zandberg says the upcoming recreational marijuana legislation in Canada and the growing acceptance of cannabis in the United States suggest there is some upside to his forecast for the size of the marijuana market, which is currently of $4.6B in 2019. The analyst says he expects Canopy to be among the market leaders in the space.

“Canopy is tracking our aggressive growth expectations and its average cost of production should decline in future quarters now that its greenhouse operations are in full production (Tweed Farms),” he says. “We have slighting increased our growth rate which has impacted our FY18 and FY19 revenue forecast. Our revised forecasts include revenue of $37.9M in FY17 (previously $37.8M) and $84.6M in FY18 (previously $76.0M).

In a research update to clients today, Zandberg maintained his “Buy” rating, but raised his one-year price target on Canopy Growth from $7.00 to $12.00