Five years ago, shares of Canopy Growth (CGC +0.94%), a leading cannabis company, were worth over $300 apiece. Now the stock is changing hands for under $2. Can the stock bounce back, or will investors be left with worthless shares in a few years? Let's find out.
Looking at Canopy Growth's financial results
Canopy Growth's financial results continue to be mediocre at best, even with some improvement on the bottom line. During the third quarter of its fiscal year 2026, ending on Dec. 31, the company's net revenue remained pretty much flat year over year at 74.5 million Canadian dollars ($54.5 million). True, the company's net loss per share of CA$0.18 ($0.13) was much better than the CA$1.11 ($0.81) loss per share reported in the year-ago period.
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It's worth pointing out, though, that this improvement was largely due to a decline in share-based compensation, a non-cash expense. This change hardly reflects stronger day-to-day operations for the company. In fact, Canopy Growth's free cash flow during this period was about CA$19 million ($13.9 million), lower than the CA$28.2 million ($20.6 million) reported in the prior-year quarter. So it's fair to say that Canopy Growth continues to post subpar financial results. Can the company improve soon?
Can regulatory progress save Canopy?
Canopy Growth has a subsidiary in the U.S., through which it hopes to eventually enter this large market upon federal cannabis legalization. That hasn't happened yet, but last year President Donald Trump signed an executive order to reclassify cannabis into a Schedule III substance from a Schedule I, which means it is now recognized as having some medical benefits and as being less prone to abuse and dependence.
This change could make it easier for marijuana companies in the country to access banking services while allowing them to deduct normal business expenses, thereby boosting their bottom lines. Could this be the catalyst that will help Canopy Growth turn things around? Hardly. It's important to note that major indexes like the Nasdaq typically don't list companies whose business practices violate U.S. federal law or the laws of the countries where they are based.
Selling cannabis is illegal at the federal level in the U.S., but it is legal in Canada, which is why Canopy Growth can be listed on the Nasdaq. The company carefully structured its legal relationship with its U.S.-based subsidiary to avoid issues with the major index.
NASDAQ: CGC
Key Data Points
Reclassification did not make cannabis legal in the U.S., so, provided the pot grower wants to stay listed on the Nasdaq, it still has to move carefully. Even if Canopy Growth were free from these constraints, it would encounter significant challenges, including stiff competition and the fact that cannabis can still not be transported across state lines. What if the U.S. eventually legalizes marijuana at the federal level? Maybe that would open up a significant opportunity. It would also attract significantly more competition.
Canopy Growth was unable to find success even after cannabis was legalized in Canada. It is unlikely to do so in the U.S., no matter what happens. So is the stock headed to $0? My view is that it is, eventually. It's best to steer clear of Canopy Growth.
