Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.
Like the rest of the cannabis sector, Canopy Growth (NASDAQ:CGC) stock boomed in 2018 in anticipation of legalization in Canada. It faded after that, along with the rest of the sector, but it surged again in 2020 as part of the COVID-19 pandemic-driven rally before collapsing into the single-digit range.
The stock crashed in 2021 and 2022 and has stayed down since then. In fact, it's now down more than 99% from its peak as revenue has fallen and it's deeply unprofitable.
Although a number of states have legalized pot in the U.S., legalization at the federal level hasn't shown any significant signs of progress. Cannabis growers have struggled with high levels of competition and falling commodity prices. Most have found little opportunity for competitive advantage.
Today, Canopy Growth is a leading cannabis company, operating as a fully-integrated grower, producer, distributor, and seller of a wide range of cannabis products. It sells products for both recreational and medical purposes in Canada, Germany, and Australia. It also holds a minority interest in Canopy USA. Its brands include Spectrum Therapeutics, its primary medical brand, Canopy Medical, Storz & Bickel, Tweed, 7Acres, and several others.
In this deep dive, we'll discuss how to buy Canopy Growth stock, whether you should invest in the company, whether it's profitable, other ways to get exposure to it, and its future prospects.
A recent review of Canopy Growth's quarterly report shows that the business is struggling. Revenue in fiscal 2025, which ended on March 31, 2025, fell 9% to CA$269 million. However, the company narrowed its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss by 60% to CA$23.5 million, which was due to a new cost-savings program, a mix shift to higher-margin medical sales, and lower inventory write-downs. Gross margin also improved 300 basis points.
It finished the year with a generally accepted accounting principles (GAAP) loss of CAD$598.1 million due to fair value losses related to its Canopy USA investment.
Canopy shuttered its Canadian retail operations in early 2023, selling 28 company-owned stores under the Tweed and Tokyo Smoke brands, closing five other stores, and ending franchising and licensing agreements. The news showed the extent of Canadian retail market competition, even though it had earlier looked like its most promising growth opportunity.
In its current form, Canopy consists of several different segments, including Canada cannabis, International markets cannabis, and Storz & Bickel (a maker of high-grade, medically certified cannabis vaporizers).
The diversified business model gives Canopy Growth exposure to a number of potential growth opportunities in the broader cannabis sector, and it's also entered the U.S. market with its acquisitions of Acreage, Wana, and Jetty through Canopy USA.
Profitability remains elusive for Canopy, but the silver lining here is that the stock price reflects the company's struggles, with its market cap falling to CA$317 million (USD$231 million).
Investors should look for clearer signs that profitability is achievable for Canopy before buying the stock.
Canopy Growth has never been profitable on the basis of GAAP operating income, and it remains unprofitable despite efforts to cut costs and drive profitability, including the sale of its retail business for an undisclosed amount and the divestiture of its This Works skin care and wellness brand.
The company is making efforts to drive profitability, cutting costs, and slimming down its balance sheet. In fiscal 2025, it reduced its debt from about CA$600 million to about CA$300 million, thanks in part to a debt exchange agreement that converted CA$81.2 million in debt to Greenstar, an affiliate of Constellation Brands, to stock. It also prepaid CAD$100 million in debt.
Operationally, Canopy continues to lose money. It also has a large interest expense at CAD$105.4 million, and its GAAP results swing wildly due to its minority stakes in other companies and a history of asset impairments and restructuring expenses.
Reducing the debt burden increases the company's chances of reaching a profit, and it may need to refinance its debt at a lower rate. Additionally, only one of its three principal business segments reported an increase in revenue in the most recent quarter; Canada Cannabis revenue climbed just 4%. At this point, the company doesn't seem to have any major growth drivers that would help it achieve profitability.
In fiscal 2025, which ended on March 31, the company had a GAAP operating loss of CA$117.1 million, which included a CA$31 million loss in asset impairment and restructuring expenses.
It also reported an adjusted EBITDA loss of CA$23.5 million and a CA$282 million operating cash flow loss.
Canopy Growth does not pay a dividend. According to the company's annual report, it has no intention of declaring dividends on Canopy shares in the foreseeable future.
Unprofitable companies generally do not pay dividends since they are unable to fund dividend payments from the business. Additionally, companies that pay dividends tend to be more mature, slower-growth businesses.
For those reasons, it's unlikely that Canopy Growth will pay a dividend soon, if ever.
Investing in exchange-traded funds (ETFs) is another way to gain exposure to a stock like Canopy Growth. By owning an ETF, you can outsource the work of diversifying the portfolio. If the ETF is actively managed, it will adjust your holdings according to the fund's determination of the best stocks to own in that category.
One ETF in the cannabis sector with exposure to Canopy Growth is the Amplify Alternative Harvest ETF (NYSEMKT:MJ). Canopy Growth's Canadian ticker (WEED.TO) is the fund's sixth-biggest holding, currently making up 6.5% of the fund's net assets of USD$106.2 million.
Stock splits tend to happen after a stock has made significant gains and its share price is much higher than it was earlier.
That might have been the case for Canopy Growth when the stock skyrocketed twice before. But the share price has fallen to almost $1 a share, and the company had a reverse stock split in December 2023. It could be forced to do one again since the Nasdaq Stock Exchange generally requires stocks to trade for at least $1.
Stock splits typically happen when a share price is more than $100, if not significantly higher. Without measurable gains, there's no reason to expect a stock split from Canopy Growth, although another reverse stock split is possible.
At this point, there's little doubt that Canopy Growth has had a challenging history and that its earlier growth potential has gone unfulfilled.
Based on the company's current financial performance, its trajectory, and its history of poor acquisitions and strategic errors, it seems hard to bet on a comeback for Canopy Growth, although new CEO Luc Mongeau has made a number of changes, including lowering the debt burden, unifying its medical cannabis businesses globally, streamlining its product portfolio, and cutting costs.
However, the cannabis sector can change rapidly when regulations are lifted, and Canopy stock could be invigorated if cannabis is legalized at the U.S. federal level. The Biden administration unsuccessfully pushed to have cannabis reclassified so it's considered less dangerous.
The industry remains highly competitive, so Canopy would face similar challenges in the U.S. to those it experienced in the Canadian market. It's worth watching any developments at the U.S. federal level for Canopy Growth shareholders or anyone considering buying the stock.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
