Mixed first quarter results have Echelon Wealth Partners analyst Russell Stanley trimming his price target on Canopy Growth Corp. (Canopy Growth Corp. Stock Quote, Chart, News: TSX:WEED).

This morning, Canopy reported its Q1, 2018 results. The company lost $4.44-million on revenue of $15.9-million, a topline that was up 127 per cent over the same period last year.

“”Our focus in the first half of calendar 2017 has been preparing our business to lead the legal recreational market that is set to open in Canada in 2018, while continuing to be the clear leader in the ongoing medical market,” said CEO Bruce Linton. “Believing business to consumer e-commerce sales will form the backbone of the Canadian cannabis market in 2018 and beyond, we have taken deliberate steps this year to stress our platform and in some cases break it, all as part of a warm-up exercise. Recording sales of $1-million in a single day earlier this year revealed many points in our sales, fulfilment and shipping infrastructure that needed strengthening. With many customers asking to be able to access all products under the canopy, it made perfect sense for us to transition, in April, from multiple, single brand sites to the Tweed Main Street marketplace. Bringing all products of our many leading brands together under one roof, to provide a shopping experience similar to what customers expect in many other markets, has strengthened our leadership position. Earlier this year we undertook a strain cultivation planning effort, the direct result of which has been a wave of dried cannabis products coming into Tweed Main Street that began in the first quarter. The next wave, in oil supply, has begun and we expect it to grow in the fall as the capacity of our new oil extraction system reaches the market. Lastly, with the addition of Canada’s first soft gel caps and cannabis from our first CraftGrow partner, Canada’s Island Garden, the ramp of products available through Tweed Main Street is just beginning.”

Stanley notes that Canopy’s topline was a little light, but the company’s EBITDA loss was a little better than he expected. As a whole, the analyst takes these results as a signal that it is going to take Canopy a little longer to get where it is going.

“While OPEX was higher than expected – in both dollar terms and as margin of revenue – gross profit (adjusted for fair value gains) was stronger than we had predicted. The result was an adjusted EBITDA loss of approximately $5.1M, which is narrower than the $5.8M we had forecast. On a net basis, we view the results of the quarter as neutral. Revenue was negatively impacted by the need to ‘reboot’ the Mettrum grow operations, as well as the consolidation of the Company’s online ordering systems into a singular platform. We still expect sequential improvement in Q218, but have trimmed our revenue and adjusted EBITDA expectations to better reflect the likely pace of improvement.”

In a research update to clients today, Stanley maintained his “Speculative Buy” rating but lowered his one-year price target from $14.00 to $10.50, the new target implying a return of 17 per cent at the time of publication.

The analyst explained his reasoning.

“The peer group average multiple for C2019 EV/EBITDA has declined by approximately 5.5x since the beginning of the year,” Stanley says. “To reflect that, we have trimmed the EV/EBITDA multiple we use for WEED by 3.0x. We continue to value WEED based on our estimates for C2020 EBITDA. While our revenue estimates have not materially changed, we have increased our OPEX assumptions so that our C2020 EBITDA estimate is reduced from $131M to $122M. The reduced EBITDA estimate and the trimmed multiple are roughly equal drivers of the target price cut. ”

Stanley thinks Canopy will post an Adjusted EBITDA loss of $9.5-million on revenue of $118.9-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $32.0-million on a topline of $278.7-million the following year.