MKM analyst Bill Kirk offered 10 questions he suggests analysts attending Canopy Growth Corp.'s Dec. 3 investor meeting should ask the Canadian cannabis market leader in a note Friday in which he said profitability will remain elusive for the company. "Unlike market expectations, we do not expect Canopy to become a profitable organization by FY2022 (on EPS)," Kirk wrote in a note to clients. "Current spending is the beginning of what is needed to capture future profitable opportunities. Existing cultivation businesses will continue to be under pressure as more supply comes online." Brand differentiation in the new sector is unpredictable, he wrote, although Canopy should benefit from better R&D than peers, thanks to its $4 billion investment from Corona beer maker Constellation Brands Inc. , he wrote. The company's excessive executive compensation policy is to blame for its losses and inventory levels remain a risk if demand does not materialize or is delayed, he said. Kirk suggests investors ask about that policy and whether cuts have impacted morale. He suggests asking whether the FDA's update on CBD will affect the company's plans for CBD beverages and how much more labor the products to be released under Cannabis 2.0., the launch of derivatives in Canada, require. Kirk rates Canopy stock as neutral with a C$23 ($17) fair value stock price estimate, below it's current price of C$25.54. U.S.-listed shares were up 2.2% in premarket trade Friday, but are down 30% in 2019, while the ETFMG Alternative Harvest ETF has fallen 31% and the S&P 500 has gained 26%. Read More...
MKM analyst Bill Kirk offered 10 questions he suggests analysts attending Canopy Growth Corp.’s Dec. 3 investor meeting should ask the Canadian cannabis market leader in a note Friday in which he said profitability will remain elusive for the company. “Unlike market expectations, we do not expect Canopy to become a profitable organization by FY2022 (on EPS),” Kirk wrote in a note to clients. “Current spending is the beginning of what is needed to capture future profitable opportunities. Existing cultivation businesses will continue to be under pressure as more supply comes online.” Brand differentiation in the new sector is unpredictable, he wrote, although Canopy should benefit from better R&D than peers, thanks to its $4 billion investment from Corona beer maker Constellation Brands Inc. , he wrote. The company’s excessive executive compensation policy is to blame for its losses and inventory levels remain a risk if demand does not materialize or is delayed, he said. Kirk suggests investors ask about that policy and whether cuts have impacted morale. He suggests asking whether the FDA’s update on CBD will affect the company’s plans for CBD beverages and how much more labor the products to be released under Cannabis 2.0., the launch of derivatives in Canada, require. Kirk rates Canopy stock as neutral with a C$23 ($17) fair value stock price estimate, below it’s current price of C$25.54. U.S.-listed shares were up 2.2% in premarket trade Friday, but are down 30% in 2019, while the ETFMG Alternative Harvest ETF has fallen 31% and the S&P 500 has gained 26%.
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