Despite middling first quarter results, GMP Securities analyst Martin Landry is sticking to his guns on Canopy Growth Corp. (Canopy Growth Stock Quote, Chart, News: TSX:WEED).

On Monday, Canopy Growth reported its Q1, 2018 results. The company lost $4.44-million on revenue of $15.9-million, a topline bump of 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.

Landry notes that the quarter met his expectations, but fell below the street consensus. The analyst says he is lowering his fiscal 2018 forecasts to reflect recent trends of lower consumption by patients, a shift towards lower-priced Tweed Farm products, and elevated SG&A investment. But the analyst is maintaining his “Buy” rating and one-year price target of $11.00 on Canopy Growth Corp, pointing out that the dominant factor of quarter was the company’s continued investment in its future.

“As expected, Canopy’s Q1 results were somewhat muted, reflecting the transitory period for Mettrum’s facility, consolidation of retail platforms, and limited oil products available for sale,” he says. “The trend in rising OPEX is somewhat concerning, as it is expected to continue thus limiting our visibility as to when the company could begin to generate higher operating leverage. Despite the above, with the new extraction system in place, WEED’s sizable inventories suggest a solid runway for growth in extract sales going forward. Our target is derived from a DCF analysis assuming: (1) a discount rate of 9%, (2) two-stage average revenue growth of 22% and EBITDA margin of 23% (unchanged), and (3) terminal growth of 3%.”

Landry thinks Canopy will generate EBITDA of negative $7.5-million on revenue of $84.9-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $24.5-million on a topline of $172.9-million the following year.