Will We Ever See Dividends From Marijuana Companies?

What will it take companies such as Canopy Growth Corp. (TSX:WEED) to begin paying a dividend?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Looking at the performance of Canada’s marijuana companies over the past year, investors have had a lot to keep them excited. To begin with, share prices increased substantially, the industry was recognized as the next “it” growth industry, and the Canadian government has taken steps to legalize the product.

While the year began with a lot of potential, investors are beginning to realize the industry produces no more than a commodity, which will make competition very easy over the long term. There is no product differentiation. In addition to the ease of entry, the new Canadian regulations around the branding of the product will make it significantly more difficult for producers to differentiate themselves. Branded marijuana (or celebrity endorsements) will not be allowed. The result is that margins could remain thin for a long time.

Can dividends be paid?

As investors are aware, dividends are often paid out of excess cash. We know that growing companies will often need as much capital as possible to grow the operations of the business to increase production capacity. Increased capacity equals higher revenues. Higher revenues translate to higher profits. The relationship is pretty simple.

We also know that dividends will not be paid during the time an industry is in high-growth mode. Once the growth slows down to a more normalized level, however, investors will grumble for higher returns, and company management will be able to float the idea due to the increase in free cash. Let’s not forget, earnings and free cash are completely different things.

What is the current situation at Canopy Growth Corp.?

For the first nine months of the fiscal year, Canopy Growth Corp. (TSX:WEED) reported earnings per share (EPS) of $0.04, but cash from operations (CFO) was -$11 million. The difference between net income and CFO is the actual cash flowing in and out of the company during the period.

An example of the discrepancy between CFO and net income is the adding back of the depreciation expense, which is a non-cash expense. In the case of a marijuana producer, the capital expenditure of building a greenhouse to grow the marijuana is not recognized up front. Although the expense may be paid up front, the benefit from the greenhouse enjoyed by the company is realized over many years.

If we assume the expense is recognized over 20 years, then one-twentieth of the amount will be recognized each year. This depreciation expense must be recognized to arrive at net income, but not to arrive at CFO. Investors hoping to receive dividends need to consider both net income and CFO.

The marijuana industry is still expanding and growing, which translates to large capital expenditures in order to increase capacity. Only after legalization will producers know just how big the market really is and how much marijuana needs to be grown. After clearing this hurdle, investors may be able to begin think about a dividend. Until then, investors will have to content themselves with capital appreciation only.

Should you invest $1,000 in Bmo Canadian Dividend Etf right now?

Before you buy stock in Bmo Canadian Dividend Etf, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Bmo Canadian Dividend Etf wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ryan Goldsman has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

An investor uses a tablet
Stocks for Beginners

The Smartest Canadian Stock to Buy With $250 Right Now

Are you looking for the smartest Canadian stock to buy right now? Consider this gem and avoid market volatility.

Read more »

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

Electricity transmission towers with orange glowing wires against night sky
Investing

Fortis Just Might Be the Best Canadian Dividend Stock to Buy in April

Let's dive into a few reasons why Canadian utility giant Fortis (TSX:FTS) still looks like a screaming buy heading into…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

a man relaxes with his feet on a pile of books
Investing

Got $7,000? How I’d Spread It Across 5 Blue-Chip Stocks for an Investing Foundation

Spreading $7,000 across these five blue-chip stocks provides a solid foundation for long-term financial success.

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

How I’d Allocate $10,000 to AI Stocks in Today’s Market

Shopify (TSX:SHOP) is one of Canada's most compelling AI stocks.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Retirement

Top Canadian Value Stocks I’d Hold in My TFSA for the Next Decade

These Canadian value stocks have significant growth potential and will enhance your TFSA portfolio’s return in the long run.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »