Cannabis company Canopy Growth (CGC 15.03%) has been a wild ride for investors over the past several years, soaring to more than $45, followed by sharp declines.

The legalization of cannabis in Canada and parts of the United States created excitement for a growing but immature industry.

Canopy Growth has fallen to its deepest depths; shares have fallen nearly 90% over the past year to $3. However, don't assume there's light at the end of the tunnel; here's why shares could struggle to get up from here.

Several things going wrong at once

A report from Grand View Research estimates that the cannabis market in North America was worth $12.4 billion in 2021 and could grow 15% annually until 2030. Canopy Growth has self-proclaimed aspirations to be the premium cannabis brand in North America.

But the company is hitting some roadblocks to its goal; revenue growth has faded, including a 25% year-over-year decline in revenue in the fourth quarter of fiscal 2022 and a 5% decline for the full year ending March 31, 2022.

Management stated that a decline in its organic Canadian business offset growth from acquisitions and growth in other product categories. Losing sales in a growing market seems like competition more than anything.

CGC Revenue (Quarterly YOY Growth) Chart.

CGC Revenue (Quarterly YOY Growth) data by YCharts.

To make matters worse, gross profit margins plunged in 2022, which you can see below. Management attributed this to several things, including lower production output, softer sales, and freight costs.

CGC Gross Profit Margin Chart.

CGC Gross Profit Margin data by YCharts.

A business will lose a lot of money when profit margins plunge, and Canopy's operating losses were CA$546 million for the entire 2022 year.

This puts Canopy between a rock and a hard place

Canopy Growth could now find itself in a difficult spot where management might make tough decisions. The company has nearly CA$1.4 billion on its balance sheet, so there is cash for the near term, even if 2022's operating losses repeat in 2023.

However, management has noted plans to boost investments in 2023 to grow its Doja and 7ACRES brands in Canada and grow distribution for its consumer product brands BioSteel and Storz & Bickel.

Canopy Growth will need to balance growth efforts with responsible spending. Invest too heavily while the company struggles, and losses could pile up. The company already has CA$1.5 billion in long-term debt, so its cash pile gives it near-term breathing room, but the balance sheet is already taking on water.

Could shares rally back?

Investors often want safety when times get tough; that means solid fundamentals and balance sheets to weather the storm. Canopy Growth doesn't fit the bill and has experienced Wall Street's wrath firsthand, seeing its price-to-sales (P/S) ratio slide to under three over the past year.

CGC PS Ratio Chart.

CGC PS Ratio data by YCharts.

Emotions can drive share prices in the short term, and a volatile market may have oversold the stock. Improving investor sentiment could give shares a bump.

But investors should keep their expectations grounded because Canopy Growth's declining growth, plunging margins, and financial questions create fundamental concerns that could prevent shares from going very far, even if the market turns around.