Piper Sandler On Canopy GrowthPiper Sandler On Canopy Growth: "Better Than Expected Revenue Driven By BioSteel, Which Is For Sale" 2023-08-10 09:21:05 AM ET (MT Newswires)
09:21 AM EDT, 08/10/2023 (MT Newswires) -- Michael Lavery over at Piper Sandler (PS) said Canopy's management has a "defined plan to rightsize its portfolio, which appears more flexible than we had originally assumed". He noted ongoing divestitures continued throughout the quarter, and management appears open to more divestitures of businesses. CGC's focus of becoming a pure play cannabis company in North America is right-sizing accordingly. PS raised its FY24 sales estimate from near $385 Million to near $410M but lowered its FY25 sales estimate from near $470M to near $450M. PS maintained its price target of US$0.50 (near 1x Calendar 2024 estimated sales).
Revenue above the Piper Sandler estimates in Q1 FY24, largely driven by BioSteel: Canopy reported F1Q24 net revenues of C$108.7M, above the PS C$90.9M estimate. Other (i.e., non-cannabis) revenue was 55% of total revenues and was C$14.9M above the PS estimate, while Cannabis revenue was C$2.9M above its estimate. In its Other segment, BioSteel revenue grew 137% (compared to its restated Q1 FY23 sales of C$13.7M), Storz & Bickel sales grew 16%, This Works sales grew 9%, but remaining Other sales fell -33%.
Portfolio has more flexibility than PS had assumed: According to PS, Canopy has a "defined plan to rightsize its portfolio", through divestitures of plants and possibly its businesses. CGC has completed $83.0M in divestitures of its production and manufacturing facilities in F1Q24 and expects a further $150.0M in divestitures by the end of F2Q23. Management also stated they were actively working to divest its BioSteel business, and This Works and Storz & Bickel are "likely also in play should the offer be right."
Canada cannabis is the primary focus for the company: PS noted Canopy is focused on delivering growth and profitability in its Canada cannabis business and becoming a pure play cannabis company in North America. It noted the price of cannabis in Canada is improving, but Canopy has shifted its portfolio away from 'value' cannabis products. PS also noted Canopy "remains focused on developing synergies with its Canopy USA business as realizes the US has revenue growth potential, should regulatory conditions improve." A full International expansion into Germany, Australia and Poland is far down the list of CGC's priorities, PS added.