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Canopy Growth shares spike 8% and wins a price target boost at Cowen as cannabis beverages impress

Canopy Growth (CGC) shares spiked 8% Monday after the world’s most valuable cannabis company reported fiscal first-quarter results that topped expectations on its top and bottom lines.

Net revenue in the quarter increased 22% from the year prior to top C$110 million ($82.17 million) and the company’s C$92 million adjusted EBITDA loss was much better than expected, thanks in part to an 18% reduction in headcount and falling expenses. However, it was the hot start for Canopy’s cannabis beverages that had CEO David Klein most excited as more than 1.2 million units were sold since the March debut.

Noting that Canopy had doubled throughput of its cannabis beverages in July, Klein told Yahoo Finance’s YFi PM that the company was set to double capacity in August, yet again, due to strong demand as the cannabis giant eyes expanding its beverage footprint into the U.S. through its partner in multi-state operator Acreage Holdings, which has already introduced some of Canopy’s flower brands.

“They also have the right to bring our drinks to the U.S. market and I’m hopeful that we hear from them over the next few months about their plans to bring our drinks to places like Illinois,” Klein said. “I think it would be really exciting to kind of get the game on in the U.S. and see how they actually do in a market such as the one that exists in Illinois.”

As Klein told Yahoo Finance earlier this year upon the launch of the company’s beverages, Canopy is seeking to use them to replicate the surging popularity of hard seltzers as a healthier alternative to beer and other alcoholic beverages.

Upside for Canopy’s beverages

The explosion of some of those leading seltzer brands, like Boston Beer Company’s Truly Hard Seltzer, have given beer makers a much needed boost. Shares of Boston Beer hit fresh all-time highs after its latest quarterly update showed Truly continues to grow beyond expectations. Klein hopes his company’s beverages might be able to steal some of those alcohol consumers.

“We think that there is just tremendous opportunity and that we can start to look at ourselves and compare ourselves from a trajectory standpoint and a volume standpoint with some of the seltzer producers as that business has evolved over the last three years,” he said, admitting there will be distribution and regulatory hurdles that could complicate attracting new cannabis consumers. For now, the cannabis-infused beverages are only offered in cannabis stores.

However, as Cowen Managing Director Vivien Azer highlighted in a new note raising her Canopy price target, there is no denying the “better than expected start” as the company’s share of revenue from so-called Cannabis 2.0 products (which includes beverages, chocolates, and vapes) accounted for 13% of first-quarter revenue, up from 2% last quarter when beverages were just beginning to roll out.

“The offerings hold over a 75% share of the beverage segment (which [Canopy] estimates accounts for 3-4% of the total legal adult use market, and would be ahead of the 1-2% share that we generally see for THC beverages in the U.S.,” Azer wrote in the note that boosted her price target to C$30.00 a share from C$27. Analysts at Piper Sandler echoed the sentiment of upside for Canopy’s beverages, writing, “we do believe investor expectations for beverages remain relatively low.”

Zack Guzman is the host of YFi PM as well as a senior writer and on-air reporter covering entrepreneurship, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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