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Cantor Cuts Canopy Growth Target After Warrants Exercise

Canopy Growth Corp (NYSE: CGC) has exercised warrants that matured May 1, received proceeds of CA$245 million ($174.5 million) and issued around 18.9 million shares, according to Cantor Fitzgerald.

Benzinga · 05/14/2020 20:08

Canopy Growth Corp (NYSE: CGC) has exercised warrants that matured May 1, received proceeds of CA$245 million ($174.5 million) and issued around 18.9 million shares, according to Cantor Fitzgerald.

The Canopy Growth Analyst

Cantor Fitzgerald’s Pablo Zuanic maintained a Neutral rating for Canopy Growth and reduced the price target from CA$27 ($19.23) to CA$25 ($17.81).  

The Canopy Growth Thesis

The retail recreational market is expected to grow from CA$1.2 billion in 2019 to CA$2 billion in 2020, Zuanic said in a Wednesday note. (See his track record here.)

More than 40% of Canopy Growth’s revenues are not generated from core cannabis, the analyst said. 

In the December quarter, Canopy Growth reported net sales of CA$124 million. As much as CA$15 million of that figure was generated by a distribution entity in Europe. Another CA$33 million came from the company’s ancillary businesses, including vape parts and devices; This Works; an international natural skincare line; and BioSteel, a Canadian sports drinks company, Zuanic said. 

“We have lowered the price target partly on the higher share count and on lower EV/sales (Enterprise value to sales) ratios for the non-cannabis parts,” the analyst said.

Although the market is willing to pay a healthy premium for balance sheet strength, Canopy Growth’s stock is already trading significantly higher than other large Canadian peers, warranting the Neutral rating, according to Cantor Fitzgerald. 

CGC Price Action

U.S.-listed shares of Canopy Growth were 2.21% higher at $13.86 at the close Thursday. 

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