Home Word on the street Analyst Price Target Cannabis Stocks in Trouble, PI Financial Cuts Target Price

Cannabis Stocks in Trouble, PI Financial Cuts Target Price

Cannabis stocks see dark clouds looming. The week ending on October 11 was disastrous for the sector. Hexo stock fell after it withdrew its fiscal 2020 outlook, which dragged down the sector. To make matters worse, PI Financial cut the target price for 15 cannabis stocks. Let see what’s going on with the cannabis industry.

Hexo withdrew its fiscal 2020 outlook and lowered its revenue expectations for the fourth quarter. As a result, there are a lot of questions about the marijuana sector. Overall, the cannabis sector’s forecast for fiscal 2020 looks hazy. Many analysts cut the target price for cannabis stocks.

PI Financial cuts target price for 15 cannabis stocks

PI Financial cut the target price for 15 cannabis stocks. The cuts are as follows:

  • Aphria (APHA) – target price cut to 9 Canadian dollars from 14 Canadian dollars with a “buy” rating
  • Aurora Cannabis (ACB) – target price cut to 7 Canadian dollars from 12 Canadian dollars with a “buy” rating
  • Canopy Growth (CGC) (WEED) – target price cut to 35 Canadian dollars from 50 Canadian dollars with a “buy” rating
  • Cronos Group (CRON) – target price cut to 17 Canadian dollars from 22 Canadian dollars with a “buy” rating
  • Hexo (HEXO) – target price cut to 5 Canadian dollars from 11.5 Canadian dollars with a “buy” rating
  • Canopy Rivers’ (RIV) target price cut to 4.15 Canadian dollars from 7 Canadian dollars with a “buy” rating
  • Heritage Cannabis (CANN) – target price cut to 0.60 Canadian dollars from 1.0 Canadian dollars with a “buy” rating
  • Medipharm Labs (LABS) – target price cut to 8.5 Canadian dollars from 9 Canadian dollars with a “buy” rating
  • OrganiGram (OGI) – target price cut to 7 Canadian dollars from 12 Canadian dollars with a “buy” rating
  • Supreme Cannabis (FIRE) – target price cut to 2 Canadian dollars from 4.5 Canadian dollars with a “buy” rating
  • Charlotte’s Web Holdings (CWEB) – target price cut to 28 Canadian dollars from 30 Canadian dollars with a “buy” rating
  • Cresco Labs (CRLBF) – target price cut to 15 Canadian dollars from 23 Canadian dollars with a “buy” rating
  • iAnthus Capital (IAN) – target price cut to 4.5 Canadian dollars from 10 Canadian dollars with a “buy” rating
  • Plus Products (PLUS) – target price cut to 5.5 Canadian dollars from 7.2 Canadian dollars with a “buy” rating
  • Trulieve Cannabis (TRUL) – target price cut to 18 Canadian dollars from 29 Canadian dollars with a “buy” rating

Other analysts also skeptical of cannabis stocks

Last week, I discussed how Bank of America analyst Christopher Carey double-downgraded Hexo stock after its CFO resigned. He also reduced the target price to $4 from $9. Read Hexo: Why Did BofA Double Downgrade the Stock? to learn more. As anticipated by the BofA analyst, Hexo withdrew its fiscal 2020 outlook and the stock crashed. The fall raised questions about other cannabis stocks and the sector as a whole. Read Hexo Withdraws 2020 Outlook, Stock Falls 24% to learn more.

Hexo stock lost 37.6% last week. Meanwhile, Canopy Group, Aurora Cannabis, Aphria, and Cronos Group stock lost 15.2%, 16.3%, 12.1%, and 13.0%. Tilray stock lost 12.8% last week. The Horizons Marijuana Life Sciences ETF (HMMJ) also fell 14.1% last week. HMMJ tracks the North American cannabis industry.

Many analysts think that the cannabis sector’s short-term outlook isn’t looking fruitful. The industry could see a sales slump in upcoming quarters. In October, many analysts also lowered Canopy Growth’s (CGC) (WEED) target price. Jefferies lowered Canopy Growth’s target price to 25 Canadian dollars from 77 Canadian dollars. Jefferies also reduced the target price for Aurora Cannabis, Aphria, and Hexo. However, analysts are still optimistic about Canopy Growth. The stock is positioned well due to Constellation Brands’ (STZ) investment.

Revenue forecast for the top five cannabis players

A Barron’s report discussed that BMO analyst Tamy Chen doesn’t expect accelerated growth in the cannabis sector until the second quarter of 2020. According to the analyst, the industry will likely report negative cash flows due to lower sales. The expansion after Cannabis 2.0 will likely yield results later next year.

Chen also said that Hexo could miss its fourth-quarter revenue guidance due to a 20% sales decline for the cannabis sector sequentially. The analyst also thinks that rising inventories could lead to lower wholesale prices, which would impact the sector in the first quarter of 2020. Analysts’ revenue estimates for the top cannabis stocks are as follows:

  • Canopy Growth – around 114.8 million Canadian dollars in the second quarter of 2020
  • Aurora Cannabis – around 111.0 million Canadian dollars in the first quarter of 2020
  • Hexo – around 15 million Canadian dollars in the fourth quarter
  • Aphria – around 133 million Canadian dollars in the first quarter of 2020

Aphria is scheduled to release its results for the first quarter of fiscal 2020 on Tuesday. Meanwhile, Hexo is scheduled to report its results on October 24. To learn more, read Aphria: What to Expect from Its Q1 2020 Earnings. We’ll have to see if the companies beat the revenue estimates or if analysts’ forecasts come true.

What do we think?

Cannabis legalization occurred a year ago in Canada. The country is legalizing edibles, vapes, and concentrates this month. However, thriving black market sales put pressure on cannabis companies’ revenues. However, we think that stricter regulations could help.

Canadian cannabis companies face the same pressure in the US. Currently, marijuana isn’t legal at the federal level. Federal cannabis legalization would help the companies expand their base and protect their revenues in the US market. Lately, presidential candidates haven’t been discussing cannabis. Silence from the Trump administration and the 2020 presidential candidates raised questions about the cannabis sector. We still think that the cannabis sector is evolving. The sector could help the economy and investors.

Very few states have legalized cannabis. Wisconsin, Pennsylvania, and South Dakota are moving forward to legalize marijuana sooner. Besides political and macroeconomic conditions, vaping concerns also have led to additional scrutiny for cannabis stocks. Overall, the cannabis industry is facing challenges right now. We’ll have to see if the challenges last or if we can expect a turn-around sooner!

For more analysts’ updates, visit our Word on the Street page.

For more cannabis-related news and updates, visit 420 Investor Daily.

Must Read

Analysts Expect MedMen’s Revenue to Rise in 2019 and 2020

In the first quarter of fiscal 2019, which ended on September 30, MedMen Enterprises (MMEN) (MMNFF) posted revenue of $21.46 million.