We have increased confidence in Canopy Growth Corp, GMP says

Following an investor day at the company’s headquarters, GMP Securities analyst Martin Landry says he has gained confidence in Canopy Growth Corp’s (Canopy Growth Corp Stock Quote, Chart TSX:WEED, NYSE: CGC) business plan.

On Tuesday, at its headquarters in Smiths Falls, Ontario, WEED hosted an investor day that saw presentations from multiple members of its management team, a tour of the company’s production facility, its distribution centre and its new visitor centre, which Landry describes as “particularly well done”.

Landry says that although he has visited the company’s headquarters several times before, he says this is the first time it didn’t look like a construction zone, offering that the company’s “overall readiness” is apparent.

Canopy Growth Corp stock deserves “valuation premium “

“We come away from our visit and meetings reassured that Canopy is ready to face the increased volumes of the recreational market, he says. “With a war chest of more than $5b, Canopy’s ability to capture the global cannabis opportunity is unrivalled. This new cash infusion clears the road for significant expansion and drastically changes the company’s growth profile, which warrants a valuation premium vs peers in our view.”

In a research update to clients today, Landry maintained his “Buy” rating and one-year price target of $50.00 on Canopy Growth Corp, implying a return of negative 10.6 per cent at the time of publication.

Landry thinks Canopy will generate ENITDA of negative $500,000 on revenue of $468.8-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $246.1-million on a topline of $1.08-billion the following year.

The analyst explained the positive take on the company in light of a price target that implies a negative return.

“Our target is based on a DCF using: 1) an 8% discount rate, 2) a 28% share of the recreational market, a 29% EBITDA margin, and (3) a 3% terminal growth,” Landry says. “While our return to target is negative, our valuation does not include Canopy’s potential entry into the United States. Assuming that the STATES ACT passes, this could change the legal landscape and facilitate Canopy’s entry into the US market. The US cannabis market size of US$6b could grow to over US$10b in the coming years. Under a scenario where Canopy captures a 10% share over time, this could
suggest a revenue potential of US$1b, which could add C$10-14 to our valuation.”