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Canopy Growth Corp’s second quarter will beat street expectations, says M Partners

Canopy Growth

Canopy GrowthHe thinks the company’s current valuation is looking “stretched”, but M Partners analyst Mason Brown says Canopy Growth Corp’s (Canopy Growth Corp. Stock Quote, Chart, News: TSX:CGC) upcoming quarter will be better than the street expects.

On Monday, November 14 Canopy Growth Corp. will report its Q2, 2016 results. The company will follow on a Q1 in which it lost $3.94-million on revenue of $7.0-million, a topline that was up 308 per cent over the same period last year.

Brown says he expects Canopy will post Adjusted gross profit of $6.1-million on revenue of $9.2-million in its second quarter, numbers that are both higher than the street consensus of $5.4-million in Adjusted gross profit on a topline of $8.6-million. He says the quarter will be all about reaffirming the company’s leadership role.

“We are looking for continued patient uptake and upkeep (or expansion) of the company’s industry-leading market share,” says the analyst. “Management has clearly outlined its current strategy: expand market share and build an established rec brand ahead of recreational sales at the expense of cash flow. We are comfortable with this strategy as it sets up the company for leadership in the anticipated rec market; however, we remain watchful of the company’s strategic positioning and ability to continue achieving its objectives. We believe the major selling points in a rec market will be product quality, brand reputation, and pricing. We expect elevated spend on marketing and branding will support the company’s position in the rec market and translate to CGC capturing a leadership position at the onset of rec sales. Our current target price assumes 10% market share of grams sold in the rec market in CY2020E – we note every additional 1% rec market share adds $5.3mm to our CY2020E adj. EBITDA estimate and $0.30/share to our target price.”


In a research update to clients today, Brown maintained his “Hold” rating and one-year price target of $5.80 on Canopy Growth Corp, implying a return of -20 per cent at the time of publication. The analyst explained the reasoning behind his target.

“We believe investors should continue to hold CGC given our long-term outlook of the company being a leading player in the dual medical + recreational cannabis market; however, CGC’s valuation looks stretched when taking into account a reasonable investment horizon,” he said.

Brown believes Canopy Growth will post Adjusted EBITDA of $600,000 on revenue of $39.4-million in fiscal 2017. He expects these numbers will improve to EBITDA of $10.5-million on a topline of $67.3-million the following year.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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One thought on “Canopy Growth Corp’s second quarter will beat street expectations, says M Partners

  1. $39.4M revenue in FY2017? With 6.9 in Q1, 9.2 in Q2, we’d have to assume significantly lower revenue growth rates (~15% for each quarter). I don’t see that happening. I think FY2017 revenue will come in around $42M.

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