In August, the Smiths Falls, Ont.-based company said its shrinking slice of Canada's recreational market was the result of temporarily closed pot shops during the pandemic, competition from small producers with potent products, and "internal supply and execution challenges."
The reopening tailwind has been weaker than anticipated, according to BMO Capital Markets analyst Tamy Chen. She says September retail sales for Ontario, British Columbia, Alberta and Saskatchewan ticked up just three per cent on a monthly basis. Canopy's sell-through, what consumers buy from stores and online, fell 15 per cent month-over-month, according to the data sourced from HiFyre.
Chen slashed a "sizeable" $42 million from her second-quarter sales estimate for Canopy in an Oct. 4 note to clients, lowering her forecast to $130 million from $172 million. She's not alone in her pessimism. Piper Sandler analyst Michael Lavery lopped $35 million from his outlook for the quarter ended Sept. 30, dropping his estimate from $168 million to $133 million on Sept. 17. Cantor Fitzgerald analyst Pablo Zuanic called for revenue of $135 million on Sept 20.
"[Canopy] has dual headwinds in Canada, as single-strain, high-THC products, where Canopy is under-represented, are gaining share," Lavery wrote in a research note. "Pricing from intense competition for recreational use products also looks like a bigger drag than we had anticipated."
Analysts surveyed by Bloomberg expected Canopy to report $147.8 million in second-quarter sales, and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $47.7 million, as of Tuesday afternoon.
Canopy has promised to achieve positive adjusted EBITDA by the end of its current fiscal year. Chief financial officer Mike Lee has said $250 million in quarterly revenue is the company's "North Star . . . where profitability starts to become within the crosshairs."
"We consider [this] very difficult to achieve," Lavery wrote. "To reach Canopy's profitability target, it will need market-leading growth in its new products and require execution improvement, which was cited several times as a headwind."
Zuanic expects Canopy will not turn a profit until the June 2023 quarter (fiscal Q1 2024), and does not see the company's sales hitting $250 million in his projections through the 2024 fiscal year.
Toronto-listed Canopy shares have fallen more than 48 per cent year-to-date. The stock closed up 3.38 per cent at $16.82 per share on Tuesday.
Zuanic maintains a "neutral rating" on Canopy shares, and a price target of $21. Chen maintains a "market perform" rating, and a price target of $25. Lavery maintains a "neutral" rating, and a price target of US$15 on the company's Nasdaq-listed stock.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.