Canadian marijuana producer Canopy Growth Corporation may not have much room to run on according to an analyst from Jefferies.

Owen Bennett, an analyst with Jefferies, wrote in a note, “Unlike some other names where operational excellence has perhaps gone under the radar, the same cannot be said for Canopy, probably as a result of a number of factors, such as the significant Constellation investment, the U.S. listing, and a very investor-facing approach with large amounts of media coverage. Valuation appears to be capturing its strong outlook.”

The analyst gave the stock a “hold” rating with a price target of C$64. This is about a 9% premium over this past Friday’s closing price.

According to Bennett, Canopy’s relatively expensive stock is in good company in the cannabis space as puffery around the new industry propelled share prices.

He added, “To date, with little financial data, share price performance has been driven by metrics such as capacity and headlines around events such as M&A and external investments. In our view, this has led to some inflated or miss-priced valuations. The market is taking larger capacity or certain deals as a validation of superior fundaments due to the fact there is very little else to base an investment case on at present.”

“As we now begin to lap a full year of recreational legalization in Canada, and financial data becomes more readily available, valuations will increasingly be driven by financial performance and delivery, and true fundamental strengths and weaknesses should become more visible,” Bennett continued.

“Constellation has put in sizable capital and has a pathway to control, so is fully committed to seeing Canopy succeed. We are already seeing evidence of this with the collaboration around Canopy’s bottling plant (to be completed by the summer) and we think they could prove key for growing a future U.S. business via distribution support and regulatory muscle,” Bennett wrote.

“While historically a solid operator, at present we feel there is little to get really excited about other than the investment and large sum of money from Altria,” Bennett said about Cronos. “We also question when Altria value creation will begin to materialize, especially as there appears little near-term appetite to put the Altria money to work.”

“Altria will likely prove a big advantage for distribution/regulatory muscle in the U.S., but to take advantage of this at present, it needs to be done via hemp CBD and we’re not aware of any current Cronos access to U.S. hemp/hemp CBD partnerships,” Bennett also added. “Finally, there appears little appetite from Cronos to put the Altria money to work in the near-term.”

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.

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