Bruce Linton, Founder and Co-CEO of Canopy Growth, speaks to CNBC on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 7, 2019. REUTERS/Brendan McDermid

Scotiabank analysts have slashed their revenue estimates for Canopy Growth Corp., (WEED.TO) warning expectations for the sector are too optimistic given “tepid post-legalization” sales.

Oliver Rowe and Ben Isaacson pared back their revenue projection for Canopy’s fiscal fourth quarter by 26 per cent to $87 million. The Smiths Falls, Ont.-based cannabis giant reported $83 million in net revenue in the period ended on Dec. 31, 2018, up 282 per cent from a year earlier.

The bleak assessment of Canopy’s sales outlook contrasts with remarks last week from Constellation Brands Inc.’s (STZ) chief executive. Bill Newlands is calling for Canopy to hit $1 billion in annual sales next year. The U.S. beer and wine maker has a 38 per cent ownership stake in Canopy.

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Toronto-listed Canopy shares fell 1.98 per cent to $55.04 at 10:44 a.m. ET on Thursday. Scotiabank maintains a “sector perform” rating on the company’s stock, with a one-year price target of $56.

Rowe and Isaacson’s skeptical take on the nascent cannabis industry extends beyond its largest player by market capitalization.

The analysts said investors have been looking past “teething pains” at the onset of the legal recreational sales in Canada, pointing to lower sales in January versus December of last year. They expect the declines will extend into February, given fewer than expected store openings, “channel build slowing materially,” limits on product availability, and flat or weaker medical demand.

“We see street estimates being far too high, which we expect to result in large earnings misses next quarter,” the analysts wrote in a research note on Wednesday.

“We expect aggregate calendar year first-quarter 2019 cannabis revenue to be below fourth-quarter 2018, while the street is looking for a 35 per cent increase.”

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