Please ensure Javascript is enabled for purposes of website accessibility

Why Canopy Growth Stock Crashed Today and Took OrganiGram and Cronos Down With It

By Rich Smith - Jun 1, 2021 at 12:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's bad news all around in the marijuana industry today.

What happened

Marijuana stocks took a tumble today after industry leader Canopy Growth (CGC 0.26%) stock reported a larger-than-expected fiscal Q4 2021 loss this morning.

Heading into the final quarter of Canopy's fiscal 2021, analysts polled by S&P Global Market Intelligence had forecast the company would lose $0.20 per share pro forma and $0.22 per share when earnings were calculated according to generally accepted accounting principles (GAAP). Losses for the full fiscal year were estimated to come in at $0.62 per share pro forma and $0.72 per share GAAP -- but Canopy missed those estimates badly.

For Q4 2021, Canopy says it actually lost $1.85 per share Canadian ($1.54). For the year, losses totaled CA$4.69 ($3.90). Cronos's quarterly losses were only about half as bad as what it suffered in the year-ago Q4, but full-year losses increased 23% year over year.  

3 red arrows going down and crashing through the floor

Image source: Getty Images.

So what

Shares of Canopy Growth tumbled 4.6% through 11:15 a.m. EDT in response to the bad news, dragging down shares of Canadian rivals OrganiGram (OGI -6.36%) and Cronos (CRON -4.54%) in sympathy. OrganiGram stock is now down 7.5% and Cronos 8.5%, despite neither of those two stocks having any bad news of their own to report.

But is that fair? Was Canopy's news even bad news?

Canopy doesn't seem to think so. Canopy led off its report with a boast that its revenue grew 37% in fiscal 2021 "with strong double-digit growth across both cannabis and other consumer products businesses," and it insisted it "maintains #1 market share of the total [marijuana] flower category in Canada." Furthermore, management says it "remains on track to achieve positive Adjusted EBITDA during the second half of FY 2022."

Now what

But consider all the qualifications needed to make that last statement: Canopy was unable to promise actual GAAP profits, so it promised "earnings before interest, taxes, depreciation, and amortization" (EBITDA) instead -- and not even real EBITDA, but just some "adjusted" variant thereof. All this suggests that real profitability remains far, far off even for one of the strongest players in the marijuana industry.

Indeed, according to the latest estimates from S&P Global Market Intelligence, it will be 2024 before Canopy reports its first net profit under GAAP accounting standards. Similarly for OrganiGram -- and Cronos investors will have to wait until 2025 before GAAP profits arrive.

If investors are starting to get impatient for profits, I cannot say I blame them.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends OrganiGram Holdings. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Canopy Growth Stock Quote
Canopy Growth
$3.82 (0.26%) $0.01
OrganiGram Holdings Stock Quote
OrganiGram Holdings
$1.03 (-6.36%) $0.07
Cronos Group Stock Quote
Cronos Group
$2.94 (-4.54%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.