With the battered Canopy Growth (CGC 0.77%) making major changes to its business with its ongoing pivot into focusing on the U.S. cannabis market, it's time to reassess the company's investment worthiness. Despite its revenue slipping from stagnation into decline over the last year or so, its shares are up by 7% over the last 90 days, but that doesn't tell investors much about where it'll be going in the next few years.

Let's examine this company's recent performance in more depth and map out where it might be headed in the near future so that you'll understand whether it might be an appealing investment for you or whether it'd be better to pass. 

This wasn't a good stock to own

If you invested $5,000 into Canopy three years ago, the bad news is that your investment would only be worth around $1,338 today, as the stock has fallen by 73.2% since then. There were a few factors driving this decline, starting with the unsustainable valuation it had in early 2021, during the market's meme stock rush, which affected cannabis stocks too. 

At the end of first-quarter 2021, its trailing 12-month (TTM) price-to-sales (P/S) ratio was 29.1, putting it higher than many of its competitors. Even meme stock darlings within the cannabis industry, like SNDL, only had a P/S of 5.1 at the time. For reference, the market's average P/S was a mere 2.8 in that period, so it isn't too surprising to see that Canopy's valuation bubble popped.

Another major pair of factors driving the decline were Canopy's lack of progress toward profitability and its sagging top line. Over the last three years, its quarterly gross margin has only weakened, and its total quarterly revenue actually dropped by around 10%, reaching CAD$117.9 million in its second-quarter fiscal year 2023 (period ended Sept. 30).

Importantly, the faltering margin indicates that management's plan to "premiumize" its product offerings by prioritizing the sale of higher-margin goods like edibles and marijuana concentrates is still a work in progress. As for the declining revenue, there are a few potential culprits, including a Canadian marijuana market that was swamped with excess supply, not to mention harder-to-measure issues like low levels of customer loyalty to the company's brands.

Things could be looking up, but risks abound

As poor as the returns of Canopy's stock have been, the business is initiating a new strategic plan that could reverse its fortunes. The plan has two elements: Partially exiting the Canadian market by divesting its retail stores, and creating a new entity in the U.S. to start penetrating the market in advance of legalization.

Cutting its Canadian operations could save Canopy as much as CAD$100 million per year in selling, general, and administrative (SG&A) costs, which totaled more than CAD$450 million in its 2022 fiscal year. That'll help to reduce 2022's net loss of CAD$302.1 million, but profitability will likely remain elusive. The divestiture's real objective is to free up as many resources as possible for the move to initiate operations in the U.S. via a triad of acquisitions of local operators called Acreage, Jetty, and Wana.

If shareholders and regulators give the nod for those acquisitions to proceed, Canopy's U.S.-based entity, Canopy USA, will have a presence in 21 states, and it'll have a portfolio of premium-price products in every product segment too. Management currently expects the process to be wrapped up before the end of the company's 2024 fiscal year (March 31, 2024).

And sometime around then is likely when Canopy might return to growth. If the company's estimates are accurate, the American cannabis market will be booming at that time, and, if things go according to plan, it'll have no problem selling plenty of its high-margin products to interested consumers. 

The catch is that its U.S. business will be facing plenty of competition. Plus, unless it can either slash more of its costs or boost its selling prices, it'll still be unprofitable and burning cash between now and when its market entry is complete. So the risks for shareholders are substantial in the near term, and they might not get much better in the medium term either. That makes Canopy Growth a difficult stock for most investors to buy enthusiastically.

But, if you're tolerant of risky investments in turnaround plays, it could still be a good choice, though you should keep in mind that there are other marijuana businesses out there that don't have the same issues that Canopy does.