Blame Canada! U.S. analysts slash Canopy Growth outlook

“Blame Canada” is the theme from a pair of U.S. equity analysts who have slashed their outlook for cannabis giant Canopy Growth Corp. (WEED.TO)(CGC)

Piper Jaffray’s Michael Lavery is forecasting weaker sales at the Smiths Falls, Ont.-based producer, citing near-term risk from the slow pace of cannabis store openings in the country’s most populous province.

“In Ontario, the 42 new stores from the second wave of licences may not open until November, held up by a legal challenge to the lottery process,” he wrote in a research note. “We lower our sales forecast outlook as we recognize near-term risks from a slower retail rollout in Ontario.”

A group of disqualified cannabis stores applicants returned to an Ontario court on Tuesday. They aim to appeal last week’s decision by a lower court to dismiss a judicial review over their eligibility for a coveted licence to open up a pot store. The legal skirmish heightens the risk of further delays to more stores opening in the country’s biggest market for cannabis.

A sign featuring Canopy Growth Corporation's logo is pictured at their facility in Smiths Falls, Ontario, Canada, January 4, 2018 .Picture taken January 4, 2018. To match Insight CANADA-MARIJUANA/INNOVATION REUTERS/Chris Wattie

At issue is the fairness of the Alcohol and Gaming Commission of Ontario’s rejection of 11 applicants for failing to file a key document within the established five-day deadline. A group of lawyers argue an email alerting their clients of the lottery’s outcome did not go through, and the deadline should have been based on when the message was actually delivered.

Lavery cut his 2020 revenue estimate to $515 million from $620 million, and lowered his price target to $40 from $49. He has an “overweight” rating on the company’s shares.

Bank of America’s Christopher Carey also flagged Canada’s challenging retail environment in a research note last week, suggesting consensus growth expectations are lofty given the market’s current headwinds.

“So, while constructive long-term, and our call is based on channel dynamics outside of the company’s control, we see too much risk to the stock until estimates are rebased,” he wrote.

Carey downgraded Canopy Growth from “buy” to “neutral,” and cut his price target from $46 to $27.

Toronto-listed shares fell 4.74 per cent to $28.91 at 12:19 p.m. ET. New York-listed shares declined 4.86 per cent to $21.82.

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