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RBC is lowering expectations for earnings from Canopy Growth as the company prepares for its first quarterly report without Bruce Linton at the helm and Mexico is launching a week of public consultations on recreational cannabis legalization.
– Jameson Berkow
RBC cuts Canopy Growth price target ahead of Q1 results
Just a few days before Canada’s largest legal cannabis grower will report its first quarterly earnings without its co-founder and longtime co-CEO, at least one analyst is losing optimism.
RBC analyst Douglas Miehm cut his price target on Canopy Growth late last week to $56 per share from $63 previously. Specifically related to Canopy’s first-quarter results, Mr. Miehm is reducing his revenue expectations by nearly 10 per cent, from more than $122-million to less than $110-million.
Analysts are expecting an overall net loss (on an adjusted earnings before interest, taxes, depreciation and amortization basis) of roughly $102-million, but RBC is forecasting a $112-million loss. Last month, Canopy co-founder and co-CEO Bruce Linton was fired after clashes with Constellation Brands, the American alcohol producer that is also Canopy’s largest shareholder.
The company had just announced a $323-million net loss in Q4, roughly four times what analysts were expecting, and led Constellation CEO Bill Newlands to publicly express disappointment in the company. Canopy has already formally walked back the billion-dollar 2020 revenue guidance set by Mr. Linton, but RBC’s Mr. Miehm warns the company’s plans for the future might be overshadowed by weakness in its core business.
“We believe that next to no growth in aggregate and/or a decline in recreational revenues could garner some investor focus that would otherwise be centered on the outlook,” Mr. Miehm wrote. “We believe that falling recreational revenues could also damage Canopy’s relative positioning, especially as Aurora’s pre-release for the June quarter suggests significant growth in the recreational market.”
“Our forecast revisions are driven by lower estimates for Canadian rec and a longer, more muted ramp in US sales,” Mr. Miehm wrote.
Canopy reports Q1 F2020 results after North American markets close on Wednesday, August 14th with management expected to hold a conference call - it’s first without Mr. Linton being involved - at 8:30am ET on Thursday.
Mexican Senate launches cannabis legalization hearings
Starting Monday, Mexican citizens will be able to share their views on how the country should go about legalizing recreational cannabis.
Nine opportunities in total are being granted to any member of the public to participate in Senate hearings being held throughout the week in Mexico City. Lawmakers have until October to comply with several Supreme Court rulings issued over the past several years that, collectively, have invalidated Mexico’s prohibition on recreational cannabis.
Despite that short-term deadline, experts nonetheless believe the country remains “ages away” from establishing a full legal cannabis market. In the meantime, Mexicans wishing to consume cannabis must navigate a slow bureaucratic process to gain access.
First, they must file a petition with the Federal Commission for the Protection against Sanitary Risk (COFEPRIS), which under current law the agency must regret. After that, aspiring cannabis consumers must petition a court for an injunction, which the Supreme Court rulings now require be granted as a matter of course.
Once all that is finished, however, Mexican cannabis consumers still lack any legal means of acquiring cannabis products, aside from growing cannabis themselves.
Such is the long road the country must still walk before it can boast a legal cannabis regime comparable to Canada’s. However, with a population roughly four times that of Canada and more than 10 times that of Uruguay, Mexican legalization remains by far the most substantial opportunity for the global cannabis industry to date.