Connor Smith
Canopy Growth stock jumped on Tuesday as part of a broader rally for Canadian cannabis stocks. The move came after an analyst at MKM Partners finally stepped off the sidelines.
The analyst, Bill Kirk, raised his rating on Canopy to Buy from Neutral and maintained a price target of 55 Canadian dollars (US$45.64). The upgrade was the first change in rating since Kirk began covering the stock in September 2019.
Canopy's U.S.-listed shares (ticker: CGC) were up 6.6% to $24.17, while cannabis exchange-traded fund ETFMG Alternative Harvest (MJ) was up 1.9%. Other notable Canadian firms Tilray (TLRY) and Aurora Cannabis (ACB) were up 3.9% and 7.9%, respectively.
Canopy stock set a 52-week high in February after Georgia's Senate runoff results brought a momentum for relaxed cannabis restrictions in the U.S. But shares are back down year to date -- off about 57% from that February peak of $56.50, and Kirk thinks sentiment has fallen low enough ahead of the company's fiscal fourth-quarter earnings report on June 1 that the risk-reward setup looks favorable.
"The fight over Canadian market share is likely to remain elevated and pressure pricing, but economic reopening, and the accompanying increased store count, should help sector-wide performance," the analyst wrote. "We believe Canopy has rationalized its organization (supply chain, logistics, infrastructure) to better capture formerly missed opportunities."
Kirk noted that the company's research and development chops are an advantage over peers. The company has also made progress on spending, including lowering general and administrative expenses and inventory levels.
"We continue to believe that the U.S. is ultimately the best opportunity, but Canopy's position in Canada is improving," he added. "The timing of U.S. THC is uncertain, but is worth more than all other markets combined."