1933 Industries Inc TGIFF

from BNN - another eye opener

[jfogarty12]

Analyst Call of the Week - BMO Capital Markets downgrades Canopy Growth 
 

BMO Capital Markets Analyst Tamy Chen published an update on the firm’s two-year outlook on the cannabis industry with a tough message for some investors to swallow: most of the challenges currently seen in the industry are set to continue unabated for the foreseeable future. That includes how consumer demand is still driven by THC and price, rather than any focus on terpenes or other marketable points, as well as how dried flower will remain a dominant category amid a lack of significant interest in edibles. Perhaps more importantly, Chen believes there won’t be any “meaningful rationalization” of Canadian cannabis producers and the country’s “punitive” excise tax regime and distribution system that places the lion’s share of control on provinces will continue to exist. “We believe the incremental opportunity from further illicit market displacement is much less than most LPs’ expectations,” Chen said. As a result of those various challenges on the industry’s supply chain, Chen thinks the industry is projected to grow in the single-digits in 2024 and onward.  

She noted that Village Farms International, which owns the Pure Sunfarms cannabis producer, is BMO’s top pick in their coverage universe with a US$6-per-share price target and the only firm in the 10 cannabis companies she tracks to be awarded an outperform rating (the equivalent of a buy). Chen is also cautiously optimistic on Cronos Group’s long-term prospects while maintaining reservations on Organigram and Tilray’s business models. Chen also downgraded Canopy Growth to underperform (the equivalent of a sell) and a $2.50-per-share target price following the company’s latest quarterly results that show ongoing challenges in selling competitive products and how some of its cost savings are unlikely to impact its bottom line. “Every LP likely struggles from time to time with suboptimal crops, yet we have not seen another company report a [gross margin] as low as Canopy’s,” she said.