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October 01 2019 - The Most Valuable Marijuana Stock Faces These 3 Main Risks: Analyst By Bloomberg

Canopy Growth (CGC) is likely to see growth suffer along with other marijuana stocks in the Canadian pot industry, a Wall Street firm said. Canopy Growth stock fell.

Bank of America analyst Christopher Carey downgraded Canopy Growth stock to "neutral" from "buy." He also slashed his price target on the stock to 35 Canadian dollars from 61.

He sees three main risks for Canopy Growth, the largest pot stock by market cap:

The potential for hefty cuts to the Street's near-term sales estimates — as much as 20% to 30%. "Canada industry growth is set to pause in the second half ... potentially flattening, a trend we think could also be the case with Canopy," Carey wrote Friday, "and yet, the Street is modeling strong double-digit sales growth quarter over quarter."

Flattening growth could make other targets harder to achieve. "If near-term revenue does adopt a flatter trajectory ... this creates an even steeper 'hockey stick' to get to the C$250 million sales/40% gross margin target" by the March 2020 quarter, he wrote. "With the gross margin target more 'in the control' of Canopy management (vs. revenue which is partly a function of the channel), we see it possible that Canopy increasingly focuses Street attention on margin trajectory near term."

Finally, the vaping scare could hurt Canopy Growth stock and cannabis stocks, "impacting on sentiment" in the near term.

Carey made clear his is mainly a "sector view" of a pause to growth in Canada, adding that Canopy Growth is an industry leader and likely longer-term winner.

Marijuana Stocks Fall

Canopy Growth stock fell 3.7% to close at 23.83 in the stock market today and, like most peers, sits below a downward-sloping 50-day line, a bearish signal.

Among other Canadian marijuana stocks, Cronos Group (CRON) dropped 2.3%, Tilray (TLRY) lost 2.9%, Aurora Cannabis (ACB) eased 2.5%, and Aphria (APHA) gave up 3%.

The vaping illness epidemic was flagged earlier this week as a threat to marijuana stocks. But Canaccord Genuity analyst Bobby Burleson said in a research note on Monday that the respiratory illnesses were likely to more quickly steer customers away from the illicit pot market.

Still, he said U.S. marijuana stocks like Greenlane (GNLN) and KushCo Holdings (KSHB) that depend on vapes for a large portion of sales were among the most exposed.

As the U.S. tries to contain the vaping illnesses, Canada is gearing up to allow legal sales of vaping products and other products, like beverages and edibles, later this year. Currently, Canada allows the sale of dry buds, joints, tinctures and capsules.

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