Canopy Growth Corporation (NASDAQ:CGC) (TSX:WEED) recently reported its financial results for the third quarter that ended September 30, 2022 ("Q3 2022").

Cantor Fitzgerald's Pablo Zuanic said they stay Neutral on Canopy and maintain their 12-month price target of $3.30.

"Management called fiscal 2Q (Sep) an 'inflection point,' with Canada's cannabis sales starting to stabilize, and cash margins starting to improve (16%) on the back of savings and a shifting mix," he said in his latest analysis.

The company's domestic medical business ($14.2Mn) was up 6% seq, and "we estimate it may be contributing as much to $ gross profits than recreational," Zuanic said. Regarding international sales ($10.5Mn), including U.S. CBD, "fell 24% seq. The CPG piece ($55Mn) was up 25% seq driven by hefty growth in BioSteel sports drinks (now 54% of CPG)," he added.

The company's total adjusted EBITDA of ~-$78Mn was only slightly worse than the June quarter (~-$75Mn).

Additionally, management is guiding for "$30-50Mn of COGS savings to mostly kick in by fiscal 2H23, and $70-100Mn in SGA savings to be realized in the next 12-18 months."

Canopy USA Structure

Zuanic noted that the Canopy USA structure is "expected to be completed within the next 9-12 months, and by then the company's global cannabis business would be profitable.

"With the stock up more than 40% since 10/24, following the Canopy USA structure announcement, clearly, sentiment is being driven by the company's ability to close on these deals."

Zuanic expects "shareholders of the three companies to vote in favor and regulatory approval to be completed sometime in 2H23; at that point, the company will need to decide whether it remains listed on the NASDAQ or only on the TSX...or find an agreement with auditors and other regulators to close on the deals but not consolidate them pending final NASDAQ acceptance of the consolidation of the Canopy USA structure."

Having introduced a new proforma model, Cantor's analysts reported that they will now take a more earnings-based approach. "Our approach yields a 12-month price target of $3.30."

Finally, on the valuation side, the recent rise in the stock has resulted in the company's piece of cannabis (no US THC) being valued at 6.9x CY23E sales vs. 1-4x for most of the group, but "we realize this is partly distorted by the fact we are only taking the U.S. assets at acquisition value," Zuanic concluded.

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