Pot Stock Pops Despite Downgrades, Price-Target Cuts

Canopy Growth reported a quarterly revenue miss last week

Digital Content Manager
Nov 8, 2021 at 11:17 AM
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The shares of Canopy Growth Corp (NASDAQ:CGC) are up 6.1% at $12.51 at last check. The cannabis stock is brushing off at least two downgrades this morning, including one from Canaccord Genuity to "sell" from "hold." Six analysts doled out price-target cuts as well, after the company reported fiscal second-quarter losses and a revenue miss last week. 

What's notable about this analyst attention is that the brokerage bunch was already bearish towards Canopy Growth stock coming into today. Of the 13 analysts in question, 10 carry a tepid "hold" or worse rating, while three say "strong buy." However, the 12-month consensus target price of $21.66 is an 81.6% premium to current levels, indicating more price-target cuts could be on CGC's horizon.

Meanwhile, short sellers have been piling on too. Short interest rose 12.3% over the last two reporting periods, and the 31.78 million shares sold short makes up 12.7% of the stock's available float. It would take almost two weeks to cover these bearish bets, at the stock's average pace of daily trading.

Last Friday, CGC closed at its lowest level since March 2020. The stock has been on a downward spiral since scoring a three-year high of $56.50 on Feb. 10, with its descending 40-day moving average containing breakouts since March. Year-to-date, CGC has already shed 51.8%.

In the options pits, long calls are getting picked up at a much faster-than-usual clip. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CGC's 50-day call/put volume ratio of 6.22 sits higher than 84% of readings in its annual range. Given the amount of short interest tied up in CGC, its possible some of this call buying is shorts seeking an options hedge.

Looking at today's options activity, 11,000 calls have crossed the tape, volume that's triple what is typically seen at this point. Most popular by far is the 11/12 12-strike call, followed by the 12.50-strike call in the same weekly series, both of which expire at the close on Friday.


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