Canopy Growth (CGC 2.41%) still tries to sell itself as a growth stock. But the reality is that over the past five years, you would have been hard-pressed to find a worse investment. Hopes of marijuana legalization in the U.S. appear to have faded, along with both the company's growth rate and the bullishness that once followed Canopy Growth's stock.
Where did it all go wrong for Canopy Growth? Here are four charts to help summarize the stock's struggles.
1. Revenue growth has been non-existent of late
An ultra-competitive pot market in Canada, and heavy-handed regulations, have hammered Canopy Growth's revenue. The company simply hasn't been able to live up to the hype, and that's painfully obvious with its non-existent growth rate in recent periods.
Data source: YCharts
2. Goodwill write-offs have been the norm
Canopy Growth built up billions in goodwill over the years as the company was in acquisition mode and acquiring many businesses, including Storz & Bickel, Supreme Cannabis, and others. But as its growth stalled and the value of that goodwill declined, the company incurred hefty impairment charges. As a result, the value of its goodwill -- the result of paying premium prices for acquisitions -- and intangibles has nosedived.
Data source: YCharts
From a value of nearly CA$1.9 billion ($1.5 billion) as of March 31, 2022, the company finished the most recent fiscal year with just CA$85.6 million in goodwill. On top of that, Canopy Growth has also incurred impairment charges related to its assets.
3. The company has burned through billions in cash
Beer company Constellation Brands in 2018 said it was investing $4 billion in Canopy Growth. But with an unprofitable and cash-burning business, Canopy Growth has depleted much of that cash in recent years.
As of March 31, its cash and cash equivalents balance was just CA$677 million. And with the company burning through CA$558 million of cash in its operating activities over the trailing 12 months, it's probable that Canopy Growth's cash will continue to dissipate this year as well, and there's little hope of much improvement in its near-term growth prospects.
Data source: YCharts
4. Plant property and equipment is down big as well
Recently, Canopy Growth has resorted to shutting down facilities and scaling back its operations as it looks to reduce costs. That's not typically what you would expect to hear from a growth-oriented business, but it's necessary. By reducing overhead spending on plant, property and equipment (PPE), the business can save some money and slow its rate of cash burn.
Data source: YCharts
Canopy Growth has recently accelerated the shutdown of some of its operations. A reduction in PP&E highlights how heavily it has slashed its operations, especially in just the past year.
Investors shouldn't expect a turnaround anytime soon
There are no easy fixes for Canopy Growth. The business is struggling, and there's little reason to expect that will change anytime soon. As long as its main option for growth is the Canadian pot market, the company will struggle. While it has tried to find creative ways to gain access to the U.S. pot market, including through a special purpose vehicle in Canopy USA, it's simply not a realistic proposition due to the U.S. federal ban on pot.
Investors should resist the temptation to buy this beaten-down cannabis stock; it remains a very risky investment to put in your portfolio.
