What happened
It's finally Friday, and it's looking like marijuana stocks are going to end this week on another high note.
Thanks to a couple of optimistic price targets just released by Wall Street bankers, shares of cannabis kingpin Canopy Growth (CGC 2.41%) gained 10.8% through 10 a.m. ET this morning. The good news appears to be pulling up Canopy's peers as well, with Aurora Cannabis (ACB -0.15%) and Cresco Labs (CRLBF 5.13%) both rising 7.5%, and Curaleaf (CURLF 5.26%) bringing up the rear with a 4.6% gain.
So what
As I suggested, Wall Street price target hikes seem to be the catalyst behind today's run. Yesterday evening after close of trading, investment banker TD Cowen more than doubled its price target on Canopy Growth stock, as StreetInsider.com just reported, predicting the shares could hit 1.80 Canadian dollars (about $1.33 U.S.) within a year. Separately, The Fly notes that U.S. megabank Bank of America has raised its price target a more conservative 18%, to CA$0.66 ($0.49).
In both cases, the bankers based their optimism on one single event: Yesterday's announcement by Canopy Growth that it will file bankruptcy papers for its BioSteel dietary supplements business, and cease pouring money into a venture that accounted for 60% of Canopy Growth's losses last quarter.
TD Cowen notes that shuttering BioSteel will "significantly reduce [Canopy Growth's] cash burn" and "remove ... material reporting weaknesses" from Canopy Growth stock, giving room for the share price to move higher. BofA also likes the move. But here's the thing: Despite raising its price target a little, Bank of America still thinks that Canopy Growth is a sell. (Technically, it rates the stock underperform.) And BofA's new price target, while a bit higher than what it was yesterday, still implies that the stock currently costs at least twice as much as it is worth.
Now what
That fact may make investors think twice about glomming onto today's stock price rally in cannabis companies.
Consider: By and large, the news for marijuana stocks these past couple of weeks has been extremely favorable. U.S. government regulators are pushing to ease regulations on marijuana scheduling (basically, the strictness with which regulators regulate its use). Congress is moving forward with legislation to permit banks to offer banking services to cannabis businesses. Why, even President Joe Biden has flipped his opinion on the drug, and now supports legalizing marijuana... for medical purposes at least.
Marijuana companies are doing their part as well, with Aurora Cannabis announcing a debt paydown that could make it easier for the company to achieve positive free cash flow next year. And now Canopy Growth is taking steps of its own to reduce its costs and -- potentially -- permit it to report positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of this year.
All that being said, though, it's worth pointing out that over the past month:
- Aurora Cannabis stock is up 76%.
- Curaleaf Holdings has gained 111%.
- Cresco Labs tacked on 133%.
- And Canopy Growth stock has soared most of all -- up 268%.
While good news deserves to result in stock price gains, these gains have already rained down in droves upon all four of these marijuana stocks. At this point, it's worth asking whether perhaps the good news has already been priced in to marijuana stock prices.
In Canopy Growth's case at least, Bank of America thinks that it has. And I agree.
