The stock may still be lost in the weeds but Roth Capital Partners analyst Bill Kirk sees sunnier days ahead for Canadian cannabis play Canopy Growth Corp (Canopy Growth Stock Quote, Charts, News, Analysts, Financials TSX:WEED). Kirk renewed a “Buy” rating on Canopy and $11.00 target price in a Thursday update, which at press time represented a projected one-year return of 200 per cent.
Canopy shares dropped sharply on Thursday as the market received the company’s just-issued third quarter fiscal 2023 financials for the quarter ended December 31. Canopy’s net sales dropped 28 per cent year-over-year to $101.2 million and adjusted EBITDA fell 30 per cent to negative $87.5 million. The company’s free cash flow was up 13 per cent year-over-year to negative $145.8 million. Consensus expectations were for $116 million in revenue and negative $63 million in EBITDA.
Canopy said it would be pivoting to an asset-light model as far as its Canadian operations go, halting cultivation at its Smiths Falls facility and ending flower production at its Mirabel, Quebec, facility. Canopy said it will be using third-party producers for its lines of beverages, edibles, vapes and extracts. The result will be a reduction in headcount of 60 per cent, including 800 positions.
“Canopy must reach profitability to achieve our ambition of long-term North American cannabis market leadership. We are transforming our Canadian business to an asset-light model and significantly reducing the overall size of our organization. These changes are difficult but necessary to drive our business to profitability and growth,” Canopy CEO David Klein.
Commenting on the announcement and business update, Kirk said Canopy hopes to save $140-$160 million in annual costs, with management predicting positive adjusted EBITDA (aside from its BioSteel investment) in fiscal 2024, which starts in April. Kirk asserted that the company’s new focus will allow it to better match regions and brands with the best operational potential.
“Where previous forecasts of profitability relied on hope/growth, we think these are the rational/concrete actions that can deliver a better profit and loss. We maintain Canopy’s value will be generated in the U.S. and by brands like BioSteel, and believe this is the appropriate decision to maximize shareholder value,” Kirk wrote.
Going forward, Kirk is forecasting Canopy to deliver full fiscal 2023 revenue and EPS of $471.1 million and negative $1.07 per share, respectively.