Benchmark analysts have reiterated their sell rating on Canopy Growth Corp., citing severe cash flow deficits and decreasing revenues in its Canadian cannabis business. According to Benchmark analyst Mike Hickey, the company's adjusted free cash flow deficit now amounts to 96% of revenue, indicating critical cost management issues. Hickey also criticized Canopy Growth's cannabis brands and product innovations, describing them as underwhelming. The company's proposal to create a publicly-traded entity for its U.S. businesses appears to be driven by desperation, he added. Furthermore, strict Canadian laws around cannabis and the lack of federal legalization in the U.S. are further challenges for the company. Hickey expressed doubts about management's effectiveness and credibility, raising concerns about its ability to revive the business.
TD Cowen Sounded Positive on Improved Gross Margins
In contrast, TD Cowen analyst Vivien Azer maintained a market perform rating on Canopy Growth Corp. Azer highlighted the company's improved gross margins as a positive sign. However, she did not provide further details or commentary on the matter.
Strong Financial Performance for Canopy Growth Corp.
Despite falling slightly below sales forecasts, Canopy Growth Corp. has demonstrated a remarkable adjusted gross margin of 33%, which exceeds expectations by a significant margin. This is a promising indication of progress in the Canadian cannabis market coupled with impressive cost savings. The company affirms that it is on track to achieve positive adjusted earnings before interest, taxes, depreciation, and amortization by fiscal 2024.
In the latest financial report, Canopy Growth Corp. disclosed a second-quarter loss of 31 cents per share, deviating from analysts' prediction of 11 cents per share. Additionally, the revenue generated, approximately $50.6 million, fell short of the estimated $53.5 million.
Nevertheless, there is positive news surrounding Canopy Growth Corp.'s Canadian cannabis business. It has experienced three consecutive quarters of organic revenue growth while significantly reducing costs.
The stock of Canopy Growth Corp. saw a slight increase of 0.4% in premarket trading on Monday. However, it has experienced a significant decline of 77.5% in 2023, in contrast to the ETFMG Alternative Harvest ETF MJ, which dropped by 28.2%, and the Global X Cannabis ETF POTX, which suffered a loss of 50.9%.
Also read: Canopy Growth's Ambitious Venture into the U.S. Cannabis Market