CGC stock continues to fall for the second straight session after falling 9% in yesterday's trading session as an analyst at Oppenheimer warned that Canopy Growth (TSX:WEED) (NYSE:CGC) investors should brace for large losses in the coming years.
Major Trouble Ahead?
The last few months have not been particularly good for the cannabis sector, and the stocks of some of the biggest companies in the industry have underperformed considerably. As far as large cannabis companies are concerned, Canopy Growth is definitely one of them, and like many other cannabis companies, it has not had a great time as of late either. However, CGC stock took a beating yesterday after an analyst issued a warning about the company’s business and indicated that the high cash burn could see the company making losses for years before it manages to turn a corner.
In a new development, Rupesh Parikh at Oppenheimer warned the firm’s investors that they should prepare themselves for big losses in the company’s financial results in the coming years. In an alarming statement, he went on to state that Canopy’s aggregate losses are going to touch half a billion dollars by March 2021 and naturally, such a warning was not welcomed by the market.
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CGC stock is down another 4% at $25.26 on the NYSE.
While it is true that the huge cash burn is an issue, investors have often looked at the massive $4 billion investment from Constellation Brands (NYSE:STZ) as a cushion of sorts. However, it is now believed that the company’s large losses are slowly eating into that cash reserve.
The worry about the massive cash burn has always been among the top points in the agenda for investors and also for Constellation Brands, which holds a 40% stake in Canopy. Canopy Growth’s failure to rein it in is believed to be one of the reasons why the co-founder of the company, Bruce Linton, was fired from his position as the Chief Executive Officer a few months back.
Parikh stated that the stock is still trading at a higher valuation, and investors should wait before there is some sort of reset in the company’s operations before they invest in CGC stock again.
What do you think? Do you agree with Parikh?
Featured image: Canva
