What happened

Canopy Growth (CGC -1.98%) was anything but a grower on Wednesday. Shares of the Canadian marijuana company withered by more than 7% on the day, following a less-than-enthusiastic coverage initiation by a stock analyst.

So what

The prognosticator now tracking Canopy Growth stock is Bernstein's Nadine Sarwat. She isn't expecting much from the struggling cannabis company, though, as she launched her coverage with an underperform (read: sell) recommendation at a price of $1.50 per share. That's well down from the $3.23 price the stock closed at on Wednesday afternoon.

Sarwat's concerns about Canopy Growth are reflective of the numerous problems facing the broader Canadian marijuana industry, although she brought up several issues specific to the company. She mentioned product price compression, a decline in market share, and "transitory headwinds," as Canopy Growth shifts its product mix more in favor of premium flower.

Additionally, recent divestments aimed at making its business more focused and efficient will likely result in lower cannabis net sales this year as compared to 2021.

Now what

Not all of Sarwat's evaluation was negative, though. She singled out the company's BioSteel brand of sports drinks as a product line with healthy potential. And she feels that the company's recent establishment of its Canopy USA subsidiary will deliver "incremental value" by saving costs at its American holdings.

Still, she wrote, "with Canopy having the weakest cannabis gross margin in our coverage, we don't forecast the company reaching positive adjusted EBITDA" until the company's fiscal 2026.

Like other pundits, she doesn't feel that the U.S. will effectively legalize recreational marijuana at the federal level at any point in the near future. Such a move would immediately and dramatically improve the fortunes of Canopy USA and, by extension, Canopy Growth as a whole.