After a brutal 2019, Canopy Growth shares trounced the market in the past year. An analyst at Cantor Fitzgerald sees the grower as the best-positioned Canadian firm he covers to benefit from U.S. marijuana legalization.
Cantor Fitzgerald analyst Pablo Zuanic raised his price target on the Toronto Stock Exchange-listed shares of Canopy to 33 Canadian dollars (US$25.89) from C$29. He still rates the stock at Neutral.
Pointing to contingent stakes in U.S. firms Acreage Holdings and TerrAscend, which trigger when marijuana is no longer federally illegal, Zuanic thinks Canopy has a first-mover advantage over peers in the event of U.S. legalization.
“At present, Canopy Growth cannot directly invest in either company, so it has only been able to make loans to the respective CBD/hemp businesses of each company,” he noted. “If Canopy indeed sees both companies as potential beachheads to develop its presence in U.S. THC, we wonder about future interim arrangements (pre-triggering events) to help both companies continue to grow organically and via M&A.”
He notes that TerrAscend has managed better at cash flow generation than Acreage, but the latter has a stronger footprint in the states that have legalized the drug. Combined, he thinks Canopy would rank between sixth and 10th among U.S. growers, in terms of presence in the states. He notes that other Canadian firms would likely need to pay higher prices to acquire some of the remaining U.S. players.
Canopy shares have gained 33% in the past 12 months. In December, the company announced cuts to production facilities that it hopes will hasten its path to profits.
If Democrats win both Senate seats in Tuesday’s Georgia runoff election, such legalization efforts would have far stronger footing than if Republicans control the Senate. Though Zuanic is Neutral on Canopy stock, he would expect a rally if Democrats win both seats.
An average of polls compiled by RealClearPolitics has the two Democratic candidates, Rev. Raphael Warnock and Jon Ossoff, leading in their respective races, but only by 0.5 percentage point each, implying both races are a tossup.
Democrats, joined by a handful of Republicans at times, in the House of Representatives have passed a few bills that would benefit marijuana growers. Most recently, the House passed the Marijuana Opportunity Reinvestment and Expungement, or MORE, Act, which would decriminalize the drug. But that bill hasn’t stood much of a chance with Senate Majority Leader Mitch McConnell calling the shots.
Canopy stock (ticker: CGC) was up 1% to $26.38 Tuesday morning, while the S&P 500 index was up 0.2%.
Write to Connor Smith at [email protected]
