A rough few months for Canopy Growth Corp CGC investors got even worse on Friday when the stock was hit by a major Wall Street downgrade. 

The Analyst

Christopher Carey downgraded Canopy Growth from Buy to Neutral and cut the price target from $46 to $27.

The Thesis

Carey said he is still a big fan of Canopy as a potential long-term leader in the massive global cannabis market. (See his track record here.) 

Yet in the near-term, the analyst said consensus growth expectations seem too high given the current dynamics of the Canadian cannabis market.

“So, while constructive long-term and our call is based on channel dynamics outside of the company’s control, we see too much risk to the stock until estimates are rebased.” 

Consensus analyst forecasts are calling for strong double-digit quarter-over-quarter revenue growth from Canopy in the second half of 2019, but Carey said Canadian market trends suggest flattening Canadian growth in the near-term.

The headline risk associated with respiratory problems tied to vaping is hurting cannabis stock sentiment, he said.

In the fiscal second quarter, Bank of America is forecasting Canopy revenue of CA$91 million ($68.6 million), well short of consensus analyst estimates of CA$123 million ($92.8 million).

The difficult Candian environment will weigh on other Canadian producers as well, the analyst said. 

Canopy Growth shares were down 2.5% at $24.10 at the time of publication. 

Benzinga’s Take

It seems Carey is as bullish as ever on the long-term outlook for Canopy, but near-term expectations for the stock have simply become unrealistic.

Cannabis investors should anticipate extreme volatility in the space to continue in the years ahead and should consider mitigating risk by diversifying their cannabis holdings.