Will Canopy Growth Stock Go Up?

Cannabis has a passionate fanbase, so it’s no surprise that Canadian pot stocks got a huge lift when it was legalized in the country in 2018. But the sky high sales numbers that investors expected hasn’t materialized for a host of reasons, and that shortfall has sent those same stocks plummeting.

Canopy Growth (NASDAQ: CGC) has been caught up in the early exuberance and subsequent disappointments. It traded at almost $500 per share in 2019, and over $400 per share in 2021, but it has been in a downward spiral ever since.

CGC share price fell by another 80% last year and ultimately shares hit rock bottom, sliding below $1 per share in mid-2023.

The plunging price put the company in jeopardy of losing its listing on NASDAQ, and it forced Canopy Growth to perform a reverse stock split just to stay above water. That resulted in CGC trading at around $5 per share, but it did little to alleviate investors’ concerns about the company’s future.

Canopy Growth has been working frantically to ease those fears by undertaking a massive restructuring. That transformation has reduced debt, cut costs, and streamlined the company’s operations.

If widespread cannabis legalization occurs in the United States, Canopy Growth could be in perfect position to serve the highly profitable market.

So will Canopy Growth shares go back up?

What Made Canopy Growth Stock Drop?

It wasn’t all doom and gloom in the company’s 3rd quarter of 2023 (2024 fiscal year 2nd quarter) earnings report. Canopy Growth has been increasing revenue organically over three straight quarters.

Unfortunately, the $70 million in revenue was still 21% lower than the same quarter of last year, and it underperformed expectations by over 15%.

The company’s biggest accomplishment was improving its margins. Consolidated gross margin of 34% was a drastic improvement over its slightly negative margin last year.

Management also made significant strides in debt reduction, lowering it by $364 million to $681 million in the quarter. Over fiscal year 2024, the company has slashed debt by nearly $1 billion.

The company’s net loss of $148.2 million was a 25% improvement over last year, even if earnings per share lagged behind expectations and it reaffirmed that it will achieve a positive adjusted EBITDA by the end of the fiscal year.

Will Canopy Growth Stock Go Back Up?

Canopy Growth stock can go back up after lowering its debt burden and growing gross margins by 34% year-over-year.

The debt and cost reduction successes were largely achieved by selling off unprofitable aspects of the company’s operations. The company has divested itself of seven facilities in just the last half of 2023, the most recent being the sale of its Hershey Drive property.

Facility sales brought in $155 million in much-needed revenue and continued Canopy Growth’s centralization of its operations. The company also sold off unprofitable segments, like the $30.4 million sale of the BioSteel brand that was finalized in December.

Along with the drive for an asset-light model, management has also focused on improving product quality. Canopy Growth credited new genetics and better cultivation techniques as the catalysts for its rise to be a top three supplier of cannabis to British Columbia retailers. That’s a marked shift from the company’s 11th-place ranking in the same quarter of last year.

Quality improvements helped the firm’s medical products gain traction. Indeed, the segment delivered four consecutive quarters of revenue growth in Canada. With the recent approval for medical marijuana in Europe, Canopy Growth began shipping five new international products in the quarter.

What Do Analysts Say About Canopy Growth Stock?

Though there were some positives out of the 3rd quarter but not enough to get Wall Street back on board with CGC.

Out of 14 analysts who have weighed in on the stock, there is a lone Buy rating. That analyst, though, is extremely bullish on CGC, predicting the stock will soar by over 1,400% in the next year to $74.97 per share.

The consensus, however, is much more muted. The median price target of $5.32 would deliver 9.2% gains to investors over the next 12 months. For that reason, eight analysts believe the stock is a hold at this point.

There are 5 Sell ratings, with one of those analysts forecasting the stock to severely underperform the market. The lowest forecast for CGC sees it dropping 25.8% over the next 52 weeks to $3.61 per share.

Is Canopy Growth Stock Undervalued?

Aside from the single believer, the analysts aren’t backing CGC just yet. The reverse stock split isn’t likely to change any minds either.

The company’s current price-to-sales value is 2.4x and while that may be a sign to some investors that the stock is undervalued, it’s no guarantee of a return to bullish ways.

That leaves the main argument for undervaluation to rest on future revenue growth. Despite increasing revenue over the last few quarters in the company’s current configuration, what Canopy Growth needs in order to bounce back is increasing cannabis legalization in the US.

While there’s no doubt that public perception of cannabis has changed for the better in recent years, legalization is a slow process and no seismic shifts appear to be on the way for the industry.

Is Canopy Growth Stock a Buy or Sell?

While those changes may not happen soon enough for most investors, there is a case to be made for Canopy Growth positioning itself to be a major player in an industry whose rise is inevitable.

But there are still too many questions and not enough answers. The company’s cost-cutting initiatives have been successful, but Canopy Growth can’t keep selling off its brands and properties ad infinitum. Will the company be able to stay afloat until federal US legalization takes place?

Even in that event, there is no guarantee that Canopy Growth’s early position in the cannabis industry will make a meaningful difference in the future US cannabis industry. There is sure to be plenty of competition from stateside companies and the black market to boot.

In the end, those questions will loom too large for most investors to take the risk on CGC. Even trading at $5 per share, the stock has proven it can go lower, and there doesn’t appear to be any immediate reason to believe it won’t.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.