**Canopy Growth Under Pressure as Analysts Question Turnaround**
*Canopy Growth shares face second consecutive day of decline amid concerns over cash burn and turnaround operations. Benchmark reduces price target to zero.*
Canopy Growth, a Canadian cannabis grower, has seen its shares come under pressure for a second day as analysts raise doubts about the company’s ability to reduce cash burn and turn around its operations. Benchmark, a leading investment firm, has significantly slashed its price target on Canopy Growth to zero, reflecting the mounting skepticism surrounding the company’s prospects.
**Challenges in an Increasingly Competitive Market**
The stock has experienced a significant decline of 78% this year, largely due to a broader selloff in the increasingly competitive marijuana market and no notable progress on federal legislation in the United States. This lack of progress, coupled with the intense competition within the industry, has eroded investor confidence in Canopy Growth. The stock closed unchanged at C$0.68 on Monday, highlighting the downward trajectory it has endured. As a result, Canopy Growth’s market capitalization has plummeted from C$25 billion ($19 billion) in 2021 to less than C$400 million, leading to its expulsion from the S&P/TSX Composite Index earlier this month.
**Doubts about Turnaround Efforts**
In light of these challenges, Benchmark analyst Mike Hickey issued a note on Monday, cutting his price target for Canopy Growth to zero. Hickey expressed skepticism regarding the management’s ability to successfully turn around the company’s performance. He cited Canopy Growth’s acknowledgment of a going concern risk in its most recent annual report and raised concerns about the company’s ability to continue operations and meet its financial obligations. Hickey’s assessment reflects the prevailing doubts surrounding the company’s future prospects.
**Expansion into the US Market**
A key factor contributing to the growing concern about Canopy Growth’s viability is its aggressive expansion into the US market. While the potential legalization of marijuana in the US remains uncertain, Canopy Growth’s commitment to expanding its presence in this market may indicate a sense of desperation. The fact that the US market still operates under federal illegality raises concerns about the viability and sustainability of Canopy Growth’s operations in the long run.
**Debt Worries and Cash Burn**
Even if the US were to legalize marijuana, it would not be a guaranteed savior for Canopy Growth. Despite implementing multiple cost-cutting programs, the company continues to burn through cash, leading to mounting concerns about its debt situation. CIBC Capital Markets analyst John Zamparo expressed these concerns in a separate note, reducing the price target on Canopy Growth to C$0.45 from C$0.50. Zamparo emphasized that the company’s debt worries are not merely paranoia but represent a genuine cause for alarm.
*Note: Canopy Growth has not responded to requests for comment as of Monday afternoon.*
By addressing the challenges Canopy Growth is currently facing, such as its declining stock price, doubts about turnaround efforts, expansion into the US market, debt worries, and cash burn, analysts have highlighted the significant hurdles the company needs to overcome to regain investor confidence and achieve sustainable growth.
GIPHY App Key not set. Please check settings