2020 was expected to be a period of strong growth for Canadian Licensed Producers (LPs), however, the COVID pandemic has served as a headwind for growth (especially on the international side of the industry.
The current market environment has made it more challenging for Canadian LPs to recover from 2019, which was a tough period for most operators. Going forward, the name of the game is execution and the market wants to see these operators generating positive free cash flow and recording a profit.
When it comes to Canadian LPs, we like to track the way the businesses are being view by leading broker-dealers that are focused on the cannabis industry. So far this year, several best-in-class Canadian LPs have been downgraded and this is a trend that our readers need to be aware of. Today, we want to highlight 3 companies that have been downgraded as well as the few companies that have been upgraded.
HEXO Corporation (HEXO.TO) (HEXO) has not received an upgrade or downgrade for several months. This is surprising to us due to how active it has been on the international side of the industry as well as with its cannabis beverage joint venture with Molson Coors (TAP.CN). The most recent price target changes are as follows:
- On June 17th, Jeffries raised its price target to $0.75 from $0.50
- On June 16th, Cormark Securities raised its price target to $1.25 from $1.15
- On June 12th, HEXO’s price target was raised by Stifel, Eight Capital, MKM Partners, and CIBC
- On June 11th, Alliance Global raised its price target to $2.50 from $1.50
Aurora Cannabis (ACB.TO) (ACB) is going in the opposite direction of HEXO Corporation and we expect things to get worse from here. The company recently acquired a decent US CBD brand and became highly focused on a vertical that we consider to be saturated. We do not have a high conviction level in the new management team and the street seems to agree with us. The most recent price target changes for Aurora are:
- On September 24th, CIBC lowered its price target to $12 from $20
- On September 23rd, Aurora Cannabis’ price target was lowered by Canaccord Genuity, ATB Capital, and MKM Partners
- On September 22nd, Cowen and Co. and Piper Sadler lowered its price target to $10 and $8, respectively
While analysts seem to be bullish on HEXO and bearish on Aurora Cannabis, the view on Canopy Growth Corporation (WEED.TO) (CGC) seems to be mixed. With approx. $2 billion of cash on the balance sheet, the company is positioned to survive the current market environment. The recent price target changes on Canopy Growth have been:
- On August 11th, Cormark Securities raised its price target while CIBC lowered its price target on Canopy Growth
- On August 10th, Cowen and Co. and Canaccord Genuity raised their price targets to $30 and $22, respectively