Pot stocks haven't made for great investments of late; in just the past six months, the Horizons Marijuana Life Sciences ETF has fallen more than 31%. And cannabis producer Canopy Growth (CGC -2.83%), once the industry's leader, has fared even worse, crashing by more than 51%.

The temptation may be there for investors to buy the stock at its reduced price, but the danger is that things can get a whole lot worse before they get better. Multiple brokerages have downgraded the stock in recent months, as analysts aren't optimistic Canopy Growth's financials will improve as quickly as management expects them to. 

Two people talking and working inside of a greenhouse.

Image source: Getty Images.

Analysts don't expect a profit anytime soon

When Canopy Growth released its first-quarter results for fiscal 2022 on Aug. 6, the company maintained its belief that it will be able to report an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) profit by the end of fiscal 2022. That gives the company until the end of March 2022 to breakeven on that metric. In Q1, the company's adjusted EBITDA loss totaled 64 million Canadian dollars for the period ending June 30 -- an improvement from the CA$92 million loss it posted a year earlier.

Pablo Zuanic, an analyst from Cantor Fitzgerald, doesn't think the company will be profitable until it reports its Q1 numbers for fiscal 2024. A big reason that analysts are skeptical about Canopy Growth's goal of reaching profitability is that, according to its Chief Financial Officer Mike Lee, it likely won't be until the company hits CA$250 million (or more) in quarterly revenue that the business can think about getting out of the red.

And analysts don't see that as a likelihood before the end of the current fiscal year. Canopy Growth is nowhere near that mark, reporting just CA$136 million in Q1. And that was down from the fourth quarter, when sales were CA$148 million.

Should investors believe the company, or the analysts?

Which side you believe will likely determine whether you think the pot stock is a good buy right now. But if CA$250 million in quarterly revenue really is the magic number for Canopy Growth to turn a profit, analysts are right to be skeptical. The company hasn't even hit CA$200 million in quarterly revenue yet.

And there's little reason to be optimistic, especially since the business has had enough struggles generating any kind of sequential growth at a time when the Canadian pot market has been reporting record numbers. In July, retail sales in Canada were CA$339 million and were up for the fifth straight month. Since February, revenue has risen by more than 29%. Meanwhile, Canopy Growth has struggled to keep its sales from falling.

The only way I see Canopy Growth breaking even is by shedding more costs. But despite numerous job cuts and plant closures over the past 12 months, the business remains far from profitability. And that's why I would definitely side with the analysts, as it still looks like a long road ahead for Canopy Growth to hit breakeven.

Why the stock could still prove to be a good long-term buy

While there looks to be near-term pain for the business and its shareholders, for long-term investors who are willing to hang on for several years, there could be some decent returns to be made from owning the stock. Canopy Growth does appear to be in a great position to tap into opportunities in the U.S. once that market is fully legal (federally) and open for business. The danger is not knowing what the industry will look like by then, as legalization could still be years away.

If you're comfortable with the risk and aware that profitability may still be a long shot for the company this fiscal year, Canopy Growth may still be a worthwhile investment for you. But for most investors, you're probably better off looking at other, safer marijuana stocks.