For a second day in a row, shares in Canopy Growth, the Canadian cannabis grower, have faced substantial pressure as analysts speculate over the company’s ability to reduce its cash burn and effectively revive operations. Benchmark, the investment firm, has slashed its price target on Canopy Growth to a shocking zero.
This year has seen a staggering 78% drop in the company’s stock, caught in a wider selloff in the increasingly competitive marijuana market and hindered by little progress in U.S. federal legislation. As a result, the company’s stock closed unchanged at C$0.68 on Monday. The firm, once valued at $25 billion ($19 billion) in 2021, has now seen its market capitalization plummet to less than $400 million. This dramatic decrease led to the company’s expulsion from the S&P/TSX Composite Index earlier this month.
In a note issued on Monday, Benchmark analyst Mike Hickey expressed little hope for Canopy Growth’s management to pull off a performance turnaround. The company, which recognized a going concern risk in its latest annual report, “may not be able to continue operations and meet its financial obligations,” wrote Hickey.
Hickey also expressed concern about the company’s aggressive expansion into the U.S., suggesting it might be “a signal of desperation,” given that the U.S. market remains federally illegal.
As of Monday afternoon, the company had not responded to requests for comments.
The potential for U.S. marijuana legalization appears to offer little hope for Canopy Growth, according to another analyst. CIBC Capital Markets analyst John Zamparo stated in a separate note on Sunday that even if the U.S. were to legalize marijuana, it would be “no saviour” for Canopy, given its ongoing cash burn and multiple cost-cutting programs.
Zamparo reduced his price target on the stock from C$0.50 to C$0.45, emphasizing that the company’s “debt worries are no paranoia.”
These developments represent a sobering reality check for an industry that has been hailed for its massive growth potential. But as Canopy Growth’s situation shows, without solid operational practices and a stable regulatory environment, even high-potential industries can face significant struggles.
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