Beleaguered cannabis producer Canopy Growth received a $0 price target by Eight Capital on Wednesday after the Toronto-based financial firm said it is no longer appropriate to value the Canadian operator as a going concern.
In a research report titled “Last Puffs of the Roach,” analyst Ty Collin said it’s Eight Capital’s view that Canopy has:
- Fewer than 12 months of cash runway.
- A lack of viable financing alternatives.
- Large ongoing losses without a clear path to profitability.
“We therefore apply an asset-based/breakup valuation for Canopy, where we find a net asset value of zero after accounting for the Company’s substantial debts,” Collin wrote.
“With the recent bankruptcy of leading cannabis retailer Fire & Flower and the distressed sale of Hexo to Tilray, we think investors should be awake to the fact that no Canadian cannabis company is too big to fail in this environment.”
In June, Canopy reported a net loss of 3.3 billion Canadian dollars ($2.5 billion) for its fiscal year ended March 31, and the company warned of its ability to continue as a “going concern.”
Collin noted that Canopy burned CA$143 million of cash in its most recent quarter, “failing to slow its rate of cash consumption in (fiscal 2023) despite longstanding efforts to streamline costs.”
Eight Capital said it believes the company could deplete its coffers within the next year, “absent drastic interventions and a speedy slashing of cash costs, which we deem improbable in view of Canopy’s track record.”
“Management’s plan of action (is) likely too little, too late.”
Earlier this week, Canopy announced that all conversions pursuant to the $100 million (132 million Canadian dollars) senior unsecured convertible debentures sold to an institutional investor in February 2023 have been completed.
Canopy said in a news release that it has completed numerous balance sheet actions to strengthen its financial position since the beginning of fiscal 2023 – for instance, by implementing a business-transformation plan.
Separately, Canopy announced the sale of its facility in Modesto, California, on June 29.
Canopy said it has now sold five facilities for proceeds of CA$81 million since April 1, 2023.
The business anticipates generating a total of CA$150 million from facility sales by Sept. 30, 2023.
Fitch downgraded Canopy’s rating to CCC- in October 2022. Previously, the company was rated CCC.
That rating carries “substantial credit risk” and a “very low margin for safety. Default is a real possibility,” according to the agency.
Matt Lamers can be reached at email@example.com.