Canadian cannabis stocks tumbled Friday after Canopy Growth Corp (NYSE: CGC) reported a significant miss for its March quarter sales and withdrew its outlook for reaching positive EBITDA. Canopy also expressed concern over the company’s June quarter prospects.
The problems witnessed by Canopy Growth in the March quarter seem to be company-specific, and the broader sell-off among the group makes Aphria Inc (NYSE: APHA) and Aurora Cannabis Inc (NYSE: ACB) even more attractive, according to Cantor Fitzgerald.
The Aphria, Aurora Analyst
Pablo Zuanic maintained Overweight ratings on both Aphria and Aurora Cannabis, with price targets of CA$9.55 ($6.97) and CA$27.00 ($19.71), respectively.
The Cannabis Market Thesis
While Canopy Growth reported a 28% sequential decline in recreational sales before provisions, the industry witnessed 18% growth in the March quarter, Zuanic said in the note. (See his track record here.)
Although June could be challenging for the industry, other companies will likely perform much better than Canopy Growth, the analyst said. U.S. data indicated robust demand during the pandemic, he said.
Friday’s sell-off increases the attractiveness of Aphria and Aurora Cannabis, as both companies are performing better than Canopy Growth in key metrics like scale, sales growth, average pricing and Cannabis 2.0 products; they have better profit margin trajectories; and their stocks currently trade at “hefty discounts,” Zuanic said.
APHA, ACB Price Action
Shares of Aurora Cannabis were down 1.28% at $13.90 at the time of publication Monday, while Aphria’s stock was up 4.14% at $4.40.