A steep selloff on Friday in the shares of Canopy Growth Corp. (NYS:CGC) (TSE:CA:WEED) increases the attractiveness of Aurora Cannabis Inc. (NYS:ACB) (TSE:CA:ACB) and Aphria Inc. (TSE:CA:APHA) (NAS:APHA) which both trade at a discount on enterprise value/current sales despite having similar or even better growth prospects, according to Cantor Fitzgerald. "Admittedly, WEED has $1.3Bn of cash (although down from $4.9Bn, and at an annualized free cash flow run rate of -C$1.2Bn based on the Mar qtr), but the gap seems excessive to us," analyst Pablo Zuanic wrote in a note to clients. Canopy shares tumbled after the company's March quarter sales fell short of estimates and the company pulled guidance for reaching positive EBITDA. "We think WEED's March quarter problems were company-specific; the company's rec sales before provisions were down 28% seq in the Mar quarter, while the industry grew 18%, with all the LPs that we cover posting double-digit growth," the analyst wrote. "As such, while June may be challenging for the LP industry (potentially), we believe WEED will lag again by a hefty margin." Zuanic favors Aurora and Aphria, which he rates as overweight, the equivalent of buy. The two companies had the industry's higher B2B recreational sales in the March quarter, he wrote. Aurora is well ahead of peers in domestic medical sales too, said the note. Aurora's U.S.-listed shares were down 3% premarket, while Aphria was down 1.2%. Canopy was down 3.2% and has fallen 17.6% in the year to date, while the Cannabis ETF (PSE:THCX) has fallen 15.6% and the S&P 500 (S&P:SPX) has fallen 6%.
June 1, 2020, 7:04 a.m. EDT