Shares of the Canadian cannabis giant Canopy Growth (CGC 10.74%) tumbled by an eye-popping 39.5% over the course of June, according to data provided by S&P Global Market Intelligence. Through the first six months of 2022, Canopy's stock price has dropped by a staggering 69%, making it the second-worst-performing equity among major marijuana cultivators so far this year.
While a fair amount of this beeline move lower can be attributed to the ongoing industrywide drawdown among cannabis stocks, Canopy's exceptionally sharp drop last month has a multifactor explanation.
Three key issues weighed on Canopy's stock price in June:
- On May 27, Canopy released its 2022 fiscal fourth-quarter results. Due to restructuring costs and stiff competition in its domestic market, Canopy posted an adjusted loss of 122 million Canadian dollars ($94 million) based on earnings before interest, taxes, depreciation, and amortization (EBITDA) for the three-month period. Wall Street was expecting a figure roughly half of this size.
- The company's dismal 2022 fourth-quarter earnings report sparked multiple analyst downgrades in June. Wall Street's negative sentiment toward the stock probably kept bargain hunters at bay in June.
- On June 29, Canopy announced a $198 million swap in convertible notes for a combination of stock and cash. Even though this transaction will help to shore up the company's balance sheet, this move proved to be immediately unpopular with shareholders due to the fact that it will dilute current stakeholders.
Is Canopy's stock worth buying at these multiyear lows? The answer still seems like a solid no.
The main problem is that Canopy's long-term value proposition is closely tied to the end of federal prohibition on cannabis inside the United States. Unfortunately, there are a slew of roadblocks hindering changes to those cannabis policies right now.
Speaking to this point, the current presidential administration is far more concerned about inflation and infrastructure than cannabis at the moment. What's more, the top Republican presidential contenders heading into the 2024 election cycle aren't exactly cannabis-friendly.
Canopy, in turn, will likely need a dark horse U.S. presidential candidate to emerge in order to reverse course anytime soon. Until then, investors may watch to watch this story unfold from the sidelines.