Canadian cannabis producer Canopy Growth Corp. (CGC) has seen its stock plummet over the last year, down more than 57% in 12 months as of early Wednesday, compared to the S&P 500’s just under 1% fall over the same period. Despite bearish views by many cannabis analysts, one bull says the world’s largest marijuana company by market value still is positioned to see its shares rally by more than 80%. “Canopy is well positioned in the sector,” says Piper Jaffray analyst Michael Lavery, per Barron’s. “Canopy’s strong balance sheet is an advantage vs. competitors.” 

Canopy Growth's shares jumped as much as 3% in daily trading on news that it completed an all-cash deal for a majority stake in BioSteel Sports Nutrition Inc., a leading maker of sports nutrition products. "The transaction provides Canopy Growth with a significant platform to enter the sports nutrition and hydration segment, and lays the groundwork for the adoption of cannabidiol ("CBD") in future product offerings," Canopy said. 

Lavery reiterated his outperform rating for Canopy Growth this week even as he lowered his target price for the stock. His new target of $40, however, still implies 83% upside from Tuesday's closing price of $21.83. While his previous target was $49, he remains bullish on the stock even as Canopy faces a long list of challenges.

Competitive Advantage

Despite the near-term headwinds facing marijuana producers, such as disappointing recreational sales in Canada, Lavery says Canopy will thrive longterm. He cites the company’s $2.3 billion in cash, which allows it to focus its money on expanding its market share as rivals struggle to raise capital. On that front, Canopy benefits from its support from beverage giant Constellation Brands Inc. (STZ), which has a $4 billion investment in Canopy giving it a 38% stake.

Lavery is optimistic that new management Canopy will be more cautious about overall corporate spending following the ouster of founder Bruce Linton. Additionally, concerns over the safety of black market vapes could boost licensed producers like Canopy, argues the analyst, per Barron’s. 

What’s Next

To be sure, Lavery's optimism contrasts sharply with Oppenheimer analyst Rupesh Parikh, who expects Canopy to post over $500 million in losses in the two years ending March of 2021, per another Barron’s report. Another downbeat note came from Bank of America Merrill Lynch analyst Christopher Carey, who cut his rating on Canopy stock from buy to neutral late last month. His major concern is not specifically tied to Canopy as a business, but that consensus estimates for the industry at large are way off given his forecast that the Canadian cannabis market growth is flattening in the second half. Carey, nonetheless, is bullish on Canopy in the longterm.