CGC stock surged on Tuesday after Bank of Montreal Capital raised its target price for the world’s largest cannabis firm from $25 to $40, citing accounts from cannabis retailers that value-priced brands such as Canopy Growth (TSX:WEED) (NYSE:CGC) are outselling higher priced brands.
CGC Stock Continues Strong Start to 2020
Tamy Chen, BMO’s cannabis analyst, said, “Following the stock’s notable sell-off last year driven by a sub-optimal product mix (gel caps) and industry-wide challenges, we believe there is potential upside to Street expectations for FQ3/20 driven by the company’s pivot into a recreational product mix that should now be better aligned with demand.” Chen also raised her target rating on CGC stock from ‘hold’ to ‘buy’.
A major issue preventing sustainable growth in the Canadian cannabis space has been the lack of physical retail locations available to customers. However, the latest statistics from Health Canada showed that Ontario cannabis sales gained 5% in November, totaling C$136 million. Earlier this month, Canopy Growth announced that it would open a further five stores in the province, bringing its total national footprint to 37 locations. With optimism returning to the cannabis market since the turn of the year, CGC stock has gained over 18% in January.
Canopy Edging Out the Competition
That boost in sales is likely a result of a sharp decline in recreational retail pricing in December due to many cannabis producers launching cheaper lines of flower product. One of Canopy’s major competitors, HEXO Corp (TSX:HEXO) (NYSE:HEXO), recently began selling a line called Original Stash that customers could buy in bulk at 40% below-average prices. In what could be a further boost for CGC stock, Chen also noted that Canopy’s value-price brands have “likely taken some share” from Aurora Cannabis (TSX:ACB) (NYSE:ACB) and Organigram (TSX:OGI) (NASDAQ:OGI).
Canopy recently announced that it was delaying the launch of its highly anticipated infused beverages line due to scaling issues. The Smiths Falls-based firm has now said that it will provide an update on its beverages when it releases its Q3 earnings next month. After losing C$155.75 million in the previous quarter, Chen said she expects the company to report revenue of C$108 million, up from the previous estimate of C$102 million. CGC stock is currently trading for $23.83.
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