Canopy Growth Corporation (TSX: WEED) is world-leading diversified cannabis, hemp and cannabis device company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms, as well as medical devices.

The Group reported reopening of stores Manitoba and Saskatchewan regions in order to cater the retail customers who preferred to select products from the stores only. The company is also enhancing its online presence through its websites and offering contactless delivery options to its customers.

FY20 Financial Highlights: WEED impresses with its top-line performance while failed to retain the momentum in its bottom-line. The company reported revenue of CAD 439.63 million, as compared to CAD 253.43 million in pcp, driven by higher demand from Canadian recreational segment. On a Gross margin front, the company made a loss of at CAD 31.68 million, significantly lower from a profit of CAD 28.24 million in FY19. Loss from operation widened to CAD 1,668.96 million from CAD 637.45 million in FY19, due to higher selling, general and administrative expenses, share-based compensation expense and inclusion of asset impairment and restructuring costs. The company reported a net loss of CAD 1,387.44 million, as compared to a net profit of CAD 712.02 million in the previous corresponding period. The company reported a cash balance of CAD 1.30 billion and total assets of CAD 6.85 billion at the end of FY20.

FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company saw an improvement within the recreational segment, which drove the top line of the company. The company also successfully launched cannabis-infused chocolates, cannabis-infused beverages, and cannabis vape products, which received positive feedback from the customers. We believe, with the reopening of the stores at Manitoba and Saskatchewan regions followed by availability of home-delivery option, the company will likely to witness improved traction for its products, which would support the top-line of the company, in the near term. The Group has expanded its distribution across the US, Germany, United Kingdom along with an innovative product offering and is expected to cater to a large chunk of the audience with varied tastes. We have valued the stock using EV/Sales based relative valuation method and have arrived at a target upside offering double-digit (in percentage terms). For the said purposes, we have used industry (Pharmaceuticals) average on NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 22.40 on June 4, 2020.

WEED Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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