Canopy Growth Corp. (NASDAQ:CGC) recently confirmed that it is undertaking a series of initiatives, including layoffs, to reduce costs and drive efficiency in order to accelerate its path to profitability. Somewhat earlier it also reported strategic adjustments to generate $100-$150 million in savings within 12-18 months. Year-to-date, Canopy stock is down 44.89%.
In the meantime, Tilray's (NASDAQ:TLRY) Breckenridge Distillery announced the second edition of the Collectors Art Series, a limited release bottle with local Denver street artist and muralist, Alexandrea Pangburn.
Meanwhile, Tilray's stock has dropped 34.10% year-to-date, which begs a question: which of these two cannabis giants deserves a premium valuation. Thankfully, a key analyst has an interesting take on the question.
Cantor Fitzgerald’s Pablo Zuanic kept a ‘Neutral’ rating on both stocks lowering the price target on Tilray to CA$6.15 from CA$8.40 and Canopy’s stock to CA$7.75 from CA$11.00.
The Thesis
Both Tilray and Canopy stocks lost 40% in the last month compared to AdvisorShares Pure Cannabis ETF (NYSE:YOLO) that fell 25% and SPDR S&P 500's (NYSE:SPY) 8% drop.
The analyst noted that Tilray’s valuation premium to Canopy has widened adding there could be risks to the upside, which depend on:
- Outlook commentary this week at the Tilray investor day and Canopy highlighting precise financial goals.
- Federal level reform news flow.
According to Zuanic’s calculations, Tilray’s cannabis unit is valued at around 30% premium to Canopy Growth’s based on CY22 sales estimates. Considering that Canopy has better developed U.S. operations than Tilray and support of Constellation Brands (NYSE:STZ), one may argue that Canopy deserves a premium, the analyst said.
He further justified the Tilray premium with Canopy having less scale in exports and in domestic recreational, a domestic portfolio more reliant on value than Tilray, significant cash burn and negative EBITDA.
Price Action
Tilray shares traded 3.39% lower at $4.84 per share and Canopy’s shares were trading 2.10% lower at $5.12 per share at the time of writing, Thursday morning.
Photo: Courtesy of Avery Meeker on Unsplash
