Canopy Growth shares were rising on Wednesday, along with its Canadian cannabis peers. An analyst at Jefferies says the stock is now “too expensive.”
Owen Bennett lowered his rating on Canopy stock (ticker: CGC) to Underperform from Hold, though he upped his price target to $23.03 from $21.10. He argues the stock’s valuation, relative to peers, is deservedly higher due to its opportunities to enter the U.S. market when it’s legal to do so. Yet he argues investors shouldn’t play U.S. legalization with the stock at these levels.
As Barron’s note dearlier this month, popular U.S. growers includeCuraleaf Holdings(CURLF),Trulieve Cannabis(TCNNF),Green Thumb Industries(GTBIF), and Cresco Labs(CRLBF).
Given that Canopy and the U.S. grower it has a contingent deal to acquire, Acreage Holdings, are losing money, Bennett sees other U.S. growers with superior fundamental outlooks. Meanwhile, he says, the Canadian market is still in a period of transition following industrywide missteps in the rollout of legal cannabis. While he sees some encouraging signs, he argues it is still too early to turn bullish on that market.
Bennett also maintained an Underperform rating onAurora Cannabisshares (ACB) in a note on Wednesday, though he raised his price target to $7.49 from $3.58. He said the company’s second-quarter results, reported earlier this month, “only reinforced our concerns on its underlying business.”
“First, Canadian sales pressures were more pronounced than we had assumed, with little improvement on the margin profile,” Bennett wrote. “Second, given the near-term debt overhang and its high cash burn rate, we raise questions marks on whether Aurora’s balance sheet is strong enough to support a potential US push.”
The downgrade hasn’t scared investors away, at least not yet. Canopy stock was up 0.8%, at $35.6, in recent trading. Aurora stock was up 3.8%, at $11.64.ETFMG Alternative Harvest(MJ), a cannabis-focused exchange-traded fund, was up 4.4%, while the S&P 500 was up 1.1%.