Canopy Earnings: Losses Narrow and Near-Term Dilution Risk Falls, but Shares Fairly Valued

Upon our initial reaction to no-moat Canopy’s fiscal fourth-quarter earnings, we don’t expect a material change to our fair value estimates of $7.70 and CAD 9.10. Shares trade slightly above our fair value estimate, as shares have nearly tripled over the last three months, far more than any other cannabis company we cover. The rally stems from the US Drug Enforcement Administration initiating the rescheduling of cannabis to Schedule III from Schedule I and progress in executing the Canopy USA deal. For cannabis exposure, we see an attractive risk-adjusted upside in no-moat Curaleaf and Green Thumb, which trade 65% and 55% below our fair value estimates, respectively.