What happened

Marijuana investors are having a mixed morning Wednesday, as shares of Canopy Growth (CGC 1.73%) move 2.8% higher after reporting what management called a "key inflection point" fiscal Q2 2023 earnings report -- but Aurora Cannabis (ACB 2.48%) and Tilray Brands (TLRY 4.02%) tumbled. Canopy this morning reported that its Q2 revenues declined 10% year over year to $117.9 million Canadian dollars.  

After initially shooting higher on potentially positive news from the 2022 midterm elections and reports of "momentum" at Canopy, both Aurora and Tilray are back in the red as we approach the noon mark -- down about 2.6% and 3.2%, respectively, as of 11:40 a.m. ET.

So what

Canopy blamed the divestiture of a German subsidiary (and the consequent loss of its revenues), plus "increased competition in the Canadian adult-use cannabis market" for its sales decline in Q2 (but said the divestiture had the greatest impact). The logical implication of that statement, therefore, is that "increased competition" doesn't necessarily mean that Aurora and Tilray took business away from Canopy Growth in the quarter -- which helps to explain why Canopy stock is up today ... and why Aurora and Tilray are down.  

Better news for all players in the cannabis industry is that Canopy returned to generating positive gross margins in the quarter -- albeit only 3% -- while the company was able to hold selling, general, and administrative expenses flat.

Now what

On balance, though, it still wasn't a great quarter for Canopy Growth, because as sales declined, the only things really growing at Canopy were its losses. Net loss for the quarter was CA$232 million -- 14 times what the company lost a year ago. Free cash flow for the quarter was -$135 million -- a 34% increase in the rate of cash burn versus the year-ago quarter.

Despite the awful numbers, Canopy CEO David Klein insisted that Canopy has reached an "inflection point" and has "momentum across our key businesses and accelerating our entry into the U.S. cannabis market." Personally, though, I don't see any momentum at all -- except in a downwards direction -- in these numbers.

Although I suppose there's a chance that if federal marijuana legalization comes to be in the U.S., this will turn things around for Canopy (although it certainly hasn't done that for them in Canada yet), I have to say that as things stand at present, the future looks bleak for Canopy Growth. As more investors realize that, I expect we'll see Canopy Growth stock reverse course and follow Aurora Cannabis and Tilray lower.