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Canopy Growth Soars On Unexpected Guidance Update, European Acquisition

Wayne Duggan

Canopy Growth Corp (NYSE: CGC) shares surged more than 4 percent after co-CEO Bruce Linton updated the company’s fiscal 2020 revenue guidance Tuesday at the GMP Securities cannabis conference in Toronto. 

What Happened

Canopy anticipates at least $744 million in revenue in fiscal 2020, exceeding consensus analyst estimates by 19 percent, Linton said. The co-CEO said he does not expect Canopy to be profitable this year.

In addition, Canopy announced Tuesday that it has acquired Spanish cannabis producer Cafina in an all-cash deal.

Why It’s Important

Canopy stock is up 79 percent in the past year. In the most recent quarter, the company reported just $83 million in revenue and a 38-cent EPS loss.

Given the company’s massive $14.5-billion market cap relative to the size of its business, the bull case for the stock assumes tremendous long-term growth. The company reported just $186 million in revenue in calendar 2018, so $744 million in 2019 revenue would represent exactly the type of growth investors are looking for.

At the cannabis conference on Tuesday, Linton said he’s not concerned with profits at this point and said Canopy will continue to heavily invest in expanding its business.

“If you have no idea what to spend your money on, then you can be profitable,” Linton said.

The Cafina deal is a perfect example of Canopy’s growth strategy. In addition to Cafina’s 1,600-square-foot greenhouse, Canopy also has a 430,000-square-foot production facility in Denmark and an additional site in Germany.

“Operating multiple production assets within Europe will allow us to increase revenue in the EU free of supply constraints,” Canopy co-CEO Mark Zekulin said Tuesday.

What’s Next

Investors will be watching closely for updates to Canopy’s growth outlook, including additional buyouts and partnerships like Canopy’s relationship with alcoholic beverage giant Constellation Brands (NYSE: STZ).

Despite its lofty valuation, CNBC analyst Jim Cramer recently said Canopy is his top cannabis stock pick and could be the next Amazon.com, Inc. (NASDAQ: AMZN).

“I think that Canopy could be the next Amazon because they've got the capital and they've got Constellation beer taking care of the liquids and they're doing the medical. I would like to see a big medical investment, but that hasn't happened yet,” Cramer said.

After a big 2018, Canopy is off to another hot start to 2019 as well. The stock is up another 58 percent year-to-date.

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Latest Ratings for CGC

Date Firm Action From To
Feb 2019 Jefferies Initiates Coverage On Hold
Feb 2019 Seaport Global Initiates Coverage On Neutral
Feb 2019 GMP Securities Downgrades Buy Hold

View More Analyst Ratings for CGC
View the Latest Analyst Ratings

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