When Will Canopy Growth Become Profitable?

Earlier this week, Marijuana Business Daily reported the three key takeaways from its Investor Intelligence Conference held in Las Vegas on December 9–10. According to the report, cannabis companies should focus on attaining profitability, maintaining a strong but simple capital structure, and improving communication with investors. So, let’s look at when analysts expect Canopy Growth (WEED) (CGC) to report positive EBITDA.

Analysts’ expectation from Canopy Growth

Canopy Growth reported a negative EBITDA of 92.1 million Canadian dollars in the first quarter of fiscal 2020. The EBITDA fell 69.2% in the second quarter to -155.7 million Canadian dollars. However, with the expectation of a decline in capital investments and G&A expenses, management expects its EBITDA to improve in the next 12–18 months.

Analysts’ consensus estimates show that the company will report a negative EBITDA of 446.4 million Canadian dollars in fiscal 2020. They expect the company’s EBITDA to improve in fiscal 2021. However, the EBITDA is still expected to be negative at 212.1 million Canadian dollars. They expect the company to report a positive EBITDA in the second quarter of fiscal 2022, which ends in September 2021. We expect the introduction of higher-margin Cannabis 2.0 products, the opening of more stores in Canada, and the expansion of the CBD business in the US to drive Canopy Growth’s profitability.

Meanwhile, analysts expect Aurora Cannabis (ACB) to report positive EBITDA in the second quarter of fiscal 2021. The quarter ends in December 2020. For Cronos Group (CRON), analysts expect a positive EBITDA in 2021. However, Aphria (APHA) has already reported a positive EBITDA in its last two quarters.

Analysts’ opinions

On December 9, Canopy Growth announced that David Klein would become its CEO on January 14. Currently, Klein is Constellation Brands’ CFO. The company has invested a significant amount in Canopy Growth.

With Klein’s appointment, analysts expect the company’s focus to shift towards profitability. On December 10, MarketWatch reported on Jefferies and Alliance Global Partners’ opinion about Klein’s appointment. In a client note, Jefferies analyst Owen Bennett said, “Positive views are likely to be taken around implications for greater financial focus and commitment from Constellation Brands, though also negatives around potential lack of external appetite for the role, and the likelihood of a heavy focus on an unproven beverage category.”

According to the same report, Aaron Grey of Alliance Global Partners gave his opinion. He expects the company to increase its focus on profitability due to Klein’s background as Constellation Brands’ CFO. On November 29, MarketWatch reported that Bill Kirk of MKM Partners doesn’t expect Canopy Growth to report a positive EPS before fiscal 2022.

Analysts’ recommendations

Analysts favor a “hold” rating for Canopy Growth. Among the 22 analysts that follow the stock, 12 recommend a “hold” rating. The consensus target price is 28.98 Canadian dollars, which implies a 12-month return potential of 10%. Read What Do Analysts Recommend for Canopy Growth? to learn more.

Canopy Growth’s YTD stock performance

So far this year, Canopy Growth has lost 28% of its stock value as of Thursday. The stock fell due to the company’s lower-than-expected performance in the first and second quarters of fiscal 2020. Weakness in the cannabis sector also contributed to the fall. However, Klein’s appointment as the new CEO, the introduction of CBD products in the US, and management’s update on upcoming Cannabis 2.0 products offset some of the declines. During the same period, Aphria, Aurora Cannabis, and Cronos Group have fallen 17.5%, 56.2%, and 36.9%, respectively.

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