Shares of cannabis are seeing dark clouds rise. The week ending October 11 was devastating for the sector. Hexo shares plummeted as it withdrew its outlook for fiscal 2020, lowering the sector. To make matters worse, PI Financial reduced the target price to 15 shares of cannabis. Let's see what happens with the cannabis industry.
Jackson dropped its outlook for fiscal 2020 and lowered revenue expectations for the fourth quarter. As a result, there are many questions about the marijuana sector. Overall, the cannabis sector's forecasts for fiscal 2020 look dangerous. Many analysts are reducing the target for cannabis stocks.
PI Financial reduces target price to 15 shares of cannabis
PI Financial cut its target for 15 reserves of cannabis. The cuts are as follows:
- AFRICA (APFA) – target price dropped to $ 9 Canadian from $ 14 Canadian with "Buy" rating
- Aurora Cannabis (ACB) – target price dropped to $ 7 Canadian from $ 12 Canadian with "Buy" rating
- Canopy Growth (CGC) (WEED) – target price dropped to CAD 35 from CAD 50 with a buy rating
- Cronos Group (CRON) – target price dropped to 17 Canadian dollars from 22 Canadian dollars with buy rating
- Hexo (HEXO) – target price dropped to 5 Canadian dollars from 11.5 Canadian dollars with buy rating
- Canopy Rivers (RIV) price dropped to C $ 4.15 from C $ 7 with a Buy rating
- Heritage Cannabis (CANN) – target price drops to $ 0.60 Canadian from 1.0 Canadian dollars with buy rating
- Medipharm Labs (LABS) – target price dropped to C $ 8.5 from CAD 9 with a buy rating
- OrganGram (OGI) – target price dropped to $ 7 Canadian from $ 12 Canadian with "Buy" rating
- Supreme cannabis (POIAR) – target price dropped to $ 2 Canadian from $ 4.5 Canadian with "Buy" rating
- Charlotte Web Holdings (CWEB) – target price dropped to 28 Canadian dollars from 30 Canadian dollars with "buy" rating
- Cresco Labs (CRLBF) – target price dropped to 15 Canadian dollars from 23 Canadian dollars with "Buy" rating
- iAnthus Capital (IAN) – target price dropped to $ 4.5 Canadian from $ 10 Canadian with "Buy" rating
- Plus Products (PLUS) – target price dropped to 5.5 Canadian dollars from 7.2 Canadian dollars with buy rating
- Trulieve Cannabis (TRUL) – Target Price Reduced to $ 18 Canadian from $ 29 Canadian with Buy Rating
Other analysts are also skeptical about cannabis stocks
Last week, I talked about how Bank of America analyst Christopher Kerry doubled Shakes stock after the GP resigned. He also reduced the target price to $ 4 from $ 9. Read Hexo: Why BofA Doubles Stock Exchange Double? to learn more. As expected from analyst BofA, Jackson withdrew his outlook for fiscal 2020 and the stock market crashed. The fall raised questions about other cannabis stocks and the sector as a whole. Read Hexo's 2020 look, falling 24% to find out more.
Hexo shares lost 37.6% last week. Meanwhile, shares of Canopy Group, Aurora Cannabis, Aphria and Cronos Group lost 15.2%, 16.3%, 12.1% and 13.0%, respectively. Tilaj stock lost 12.8% last week. Life Sciences Horizons Marijuana ETF (IMF) also fell 14.1% yesterday. IMF monitors the cannabis industry in North America.
Many analysts believe the short-term outlook for the cannabis sector does not look fruitful. The industry may see sales drop in the coming quarters. In October, many analysts also cut Canopy Growth (CGC) (WEED) target price. Effeffer lowered Canopy Growth's target price to $ 25 Canadian from $ 77. Effefree also reduced the target for Aurora Cannabis, Africa and Hexos. However, analysts are still optimistic about canopy growth. The action is well positioned as a result of the Constellation Brands (STZ) investment.
Revenue forecast for the top five cannabis players
Barron's report argued that BMO analyst Tami Chen did not expect rapid growth in the cannabis sector by the second quarter of 2020. According to the analyst, the industry is likely to report negative cash flows due to lower sales. Expanding on cannabis 2.0 is likely to yield results later next year.
Chen also said that Jackson could miss fourth-quarter revenue, due to a 20% drop in sales for the cannabis sector subsequently. The analyst also believes that an increase in stocks could lead to lower wholesale prices, which will affect the sector in the first quarter of 2020. Analysts' earnings estimates for top cannabis stocks are as follows:
- Canopy growth – about $ 114.8 million in the second quarter of 2020
- Aurora Cannabis – about $ 111.0 million Canadian in the first quarter of 2020
- Faxo – about $ 15 million in the fourth quarter
- Africa – about 133 million Canadian dollars in the first quarter of 2020
Africa is due to announce its results for the first quarter of fiscal 2020 on Tuesday. Meanwhile, Hexo is due to announce its results on October 24. To find out more, read Africa: What to Expect From Its Earnings Q1 2020. We have to see whether companies are lowering their earnings estimates or whether analysts' forecasts.
What do we think?
The legalization of cannabis occurred a year ago in Canada. The country is legalizing medicines, lime and concentrates this month. However, advanced sales on the black market have put pressure on the earnings of cannabis companies. However, we think stricter regulations could help.
Canadian cannabis companies face the same pressure in the United States. Currently, marijuana is not legal at the federal level. Federal cannabis legalization will help companies expand their base and protect their revenue in the US market. Recently, presidential candidates have not discussed cannabis. The silence by the Trump administration and presidential candidates for 2020 has raised questions about the cannabis sector. We still think the cannabis sector is developing. The sector can help the economy and investors.
Very few states have legalized cannabis. Wisconsin, Pennsylvania, and South Dakota are advancing to legalize marijuana as soon as possible. In addition to the political and macroeconomic conditions, concerns about evaporation have also led to additional scrutiny of cannabis stocks. Overall, the cannabis industry is facing challenges right now. And we have to see if the challenges continue or can we expect a turnaround sooner!
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