Canopy Growth Corp. is the clear market leader but its stock is overpriced, says Beacon Securities

Canopy Growth Corp. CEO Bruce Linton.With pot-growing facilities lined up in every province and supply deals secured in four of them, Canopy Growth Corp. (TSX:WEED) stands as the clear leader in the run-up to recreational marijuana’s start date, says analyst Vahan Ajamian with Beacon Securities.

The only problem? At currently $27 and change, Canopy shares are too pricey, the analyst contends.

Yesterday, Canopy released its Q3 2018 results, reporting $21.7 million in revenue for the quarter ending December 31, a 123 per cent year-over-year gain. Those record numbers came in slightly below consensus estimates, however, which had forecasted revenue at $24.2 million. Canopy also reported an EBITDA of $-7.1 million, said to be the result of growing pains, including international expansion and marketing.

Even with the lower numbers, the company is well-positioned in comparison with its competitors, says Ajamian, who maintains his “Hold” rating and a 12-month target price of $24.50, representing a potential return of negative ten per cent at time of publication.

“Canopy is the clear market leader,” says the analyst in a note to clients on Thursday. “We believe it is best positioned to swarm the shelves with the most product and brand recognition, providing it with the best shot at attracting recreational consumers in the first place and keeping them long-term.”

Canopy recently announced securing an agreement with SAQ (Société des alcools du Quebec) to provide 12,000 kg of cannabis to the province of Quebec, one of six companies so far to do so. That makes it four provinces (Quebec, New Brunswick, PEI and Newfoundland and Labrador) with which Canopy has secured supply agreements, more than a good start for the company, says Ajamian.

“Even if the company is 40% less prolific in its penetration in the remainder of the country, we believe it could feasibly supply another 41,067 kg in the other provinces for total sales of 84,708 kg in the first full year of [recreational cannabis],” says the analyst. “Applying a blended rate of $6/g would result in revenue of half a billion dollars.”

That’s enough to deserve a price hike, says Ajamian, whose target price for Canopy rose from $16.50 to $24.50, but not enough to give it a Buy rating. The analyst maintains his “Hold” rating for Canopy and states, “Even on our higher forecasts we struggle to see meaningful upside to the company’s shares at current levels on a fundamental basis.”